top of page

What is inflation?

Updated: Jan 14

Picture of a hand holding a dollar note in the inflation article

Inflation is the rate at which the general level of prices for goods and services rises, leading to a decrease in the purchasing power of money. In simpler terms, as inflation increases, each unit of currency buys fewer goods and services. Here are the key points to understand about inflation.


Causes of Inflation


1- Demand-Pull Inflation:

  • Occurs when demand for goods and services exceeds supply.

  • Often described as "too much money chasing too few goods."

  • Common in growing economies where consumer confidence and spending are high.

2- Cost-Push Inflation:

  • Happens when the costs of production increase, leading businesses to raise prices.

  • Can be due to rising labor costs, raw material prices, or supply chain disruptions.

3- Built-In Inflation:

  • Also known as wage-price inflation.

  • When workers demand higher wages to keep up with rising living costs, businesses may increase prices to cover higher wage expenses.


Measuring Inflation

  • Consumer Price Index (CPI): Measures the average change in prices paid by consumers for a basket of goods and services.

  • Producer Price Index (PPI): Measures the average change in selling prices received by domestic producers for their output.

  • Core Inflation: Excludes volatile items like food and energy to provide a more stable measure of inflation.


Effects of Inflation


1- Decreased Purchasing Power:

As prices rise, the value of money falls, meaning consumers can buy less with the same amount of money.

2- Uncertainty in the Economy:

  • High inflation can create uncertainty, leading to less investment and economic growth.

  • Can erode savings if the inflation rate is higher than the interest rate earned on savings accounts.

3- Impact on Borrowing and Lending:

  • Borrowers may benefit if inflation rises, as they repay loans with money that is worth less.

  • Lenders may lose out unless interest rates adjust to reflect inflation.

4- Wage-Price Spiral:

  • Rising prices lead to demands for higher wages, which in turn can lead to higher prices, creating a cycle.


Managing Inflation

  • Monetary Policy: Central banks, like the Federal Reserve, can influence inflation by adjusting interest rates and controlling the money supply.

  • Fiscal Policy: Governments can use taxation and spending policies to influence economic activity and inflation.



Understanding inflation is crucial for both individuals and businesses to make informed financial decisions and for policymakers to maintain economic stability. For any financial information that you may need, contact us at Ndovu to best understand how to grow and save your money. 


Disclosure:

Ndovu is a regulated Robo-advisory platform operated by Ndovu Wealth Limited (‘NWL’). NWL is a Fund Manager licensed by the Capital Markets Authority (Kenya).


The information provided on this platform and the products and services offered are intended solely for persons in regions and jurisdictions where such distribution and utilization are in accordance with local laws and regulations. Ndovu does not promote its services in regions where it lacks the necessary licenses; It is exclusively available to persons residing in countries where it holds a valid license or has regulated partners. Ndovu does not extend its services to citizens of the United States, Canada, Japan, and other restricted territories.


Disclaimer:

 All ETF products are subject to risk, including country/regional, liquidity, and currency risks. Market prices of securities within the ETF may rise and fall, sometimes rapidly and unpredictably.


While ETFs provide diversification through exposure to a basket of securities, they do not eliminate the risk of loss. Diversification does not ensure a profit or protect against a loss. These are non-cis products and are registered by the SEC.



Comments


Download our mobile app and start investing today.

© 2025

 · Ndovu · All Rights Reserved.

Download Ndovu app from Google play or play story
Download Ndovu app from the app store

 

 

Past performance is not reflective of future performance, and the price of units and the income may go down as well as up. In certain specified circumstances the right to redeem units may be suspended. The Capital Markets Authority does not take responsibility for the financial soundness of the scheme or for the correctness of any statements made or opinions expressed in this regard.

Ndovu is a regulated digital platform operated by Ndovu Wealth Limited (“Ndovu”). Ndovu is licensed by the Capital Markets Authority (Kenya) as a Fund Manager and is also regulated by the Institute of Certified Investment & Financial Analysts (ICIFA), the Communications Authority and the Nairobi Securities Exchange. Ndovu is a registered trademark of Ndovu Wealth Limited. Ndovu Wealth Limited, a CMA-licensed Investment Adviser, provides advisory services. US-traded securities are provided to Ndovu users by Interactive Brokers LLC. Interactive Brokers is a member of FINRA/SIPC, which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). An explanatory brochure is available upon request or at www.sipc.org.

Investment involves risk. The value of investments and their income can go up or down and you may not get back the amount originally invested. There is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives and Ndovu Wealth Limited's charges and expenses. Ndovu Wealth Limited’s internet-based advisory services are designed to assist clients in achieving discrete financial goals. They are not intended to provide comprehensive tax advice or financial planning for every aspect of a client’s financial situation and do not incorporate specific investments that clients hold elsewhere. Past performance does not guarantee future results, and the likelihood of investment outcomes is hypothetical in nature. Not an offer, solicitation of an offer, or advice to buy or sell securities in jurisdictions where Ndovu Wealth Limited is not registered.

By using this website, you accept our (Terms of Use) and (Privacy Policy) and (Data Protection Policy).

bottom of page