Mortgage Rates Rise To Combat Inflation

It is no secret that the country is experiencing a rise in inflation. Although there is no one single cause, many factors contribute to the current situation. For many Americans, the day to day experience of inflation is more real than the knowledge of what it is and how it comes to be.

What is inflation?

Inflation occurs when the prices of goods and services increase over time. This can happen when the demand for goods and services increases, or when the supply of goods and services decreases. The rate at which prices are generally increasing and, as a result, the purchasing power of money is decreasing is known as inflation. A rise in the amount of available money is what causes inflation.

Inflation can also happen when the government prints more money. Inflation can be beneficial to some people, such as those who own assets that increase in value as prices increase. However, inflation can also be harmful to people on fixed incomes, such as retirees, as their incomes do not increase at the same rate as prices.

Inflation can also lead to economic instability, as people may start hoarding goods and services in anticipation of further price increases. The rate of inflation is usually measured by the Consumer Price Index (CPI). There are two main types of inflation:

• Demand-Pull Inflation: This happens when the demand for goods and services outpaces the supply. This can happen when the economy is growing too quickly.
• Cost-Push Inflation: This happens when the costs of production increase, leading to higher prices. This can happen when the cost of raw materials increases.

How do we combat inflation?

The government can combat inflation by raising interest rates, decreasing the money supply, or increasing taxes. Currently, to combat inflation, the Federal Reserve raises interest rates. The Federal Reserve is also acting to prevent the economy from overheating. Asset bubbles and inflation can both be the results of an economy that is growing too quickly. When the value of assets like stocks and real estate increases disproportionately before declining, this is known as an asset bubble. The Federal Reserve is aiming to stop an asset bubble by raising interest rates.