This is explained as the increase in the overall costs of services and goods for a certain time period. This signifies that as the general level of costs increases, the buying power for every unit of money fall. For instance, there is a rise in cost if a single dollar can purchase two candy bars in the year 2000 and only a single candy bar in the year 2009. Most of the economists agree that the rise in price is resulted mainly by the imbalanced growth of supply of money in due respect to charge of expansion of the economic condition. Other causes include more demand for services and goods and low availability of the supply at the time of scarcities. This has both advantages and disadvantages mainly depending on the individuals concerned. For example, high rise in cost helps the exchangers as it lessens the actual value of finance they pay to the borrowers. Consumers, on the contrary are definitely hurt by the high rise in cost as it corrodes the buying power.
In the overseas exchange market, the problem of inflation is very significant as it is thevital factors considered by the Central Banks when they determine the rate of interest. The main body of US in finding the interest rates, the Federal Reserve utilizes a report known as Personal Consumption Spending as their most demanded method for measuring the rise in cost while the central banks like the European Central Bank utilizes a report known as Consumers Price Index. This index calculates the rise in cost by getting the average cost of large number of goods purchased by the customer and compare it with the cost of goods in various times. The resulting change in price is found as the inflation rate. This index is generally computed on a yearly, quarterly and monthly basis in certain nations. As you can find out, it is the duty of Central Banks for maintaining specific balance in setting the rate of interest to ensure it does not hurt an economy.