What is inflation? How does inflation affect international business?
Answer: Inflation means that prices are going up as measured against a standard level of purchasing power. The inflation rate is the percentage increase in the change in prices from one period to the next, usually a year. Economists use different types of indices to measure inflation. In the United States, the Consumer Price Index is the official measure of inflation. The CPI measures a fixed basket of goods and compares their prices from one period to the next. A rise in the index results in inflation. Inflation affects interest rates, exchange rates, the cost of living, and the general confidence in a country's political and economic system.