Inflation is one of those things you don’t really notice until it hits your wallet. Suddenly, your favorite snack costs $3 instead of $2, rent is painfully high, and your grandparents won’t stop talking about how cheap things were “back in their day.” But what actually is inflation, why does it happen, and what does IB Economics want you to know about it? Let’s break it down.
Inflation is when the general price level of goods and services increases over time. This means that the same amount of money buys you less stuff than before.
So yeah, inflation is a big deal. 
The IB syllabus says inflation happens when the average price level increases due to higher demand or higher costs. That brings us to the two main types of inflation:
Demand-Pull Inflation 
“Too much money chasing too few goods.”
This happens when people and businesses start spending more, but there isn’t enough supply to keep up. The result? Prices go up because everyone is competing to buy the same limited goods.
More money in the economy – If governments print too much money or lower interest rates, people have more to spend.
Strong consumer demand – If people are earning more and feeling confident, they spend more, pushing prices up.
High demand for exports – If a country’s goods are super popular internationally, demand rises, leading to price increases.Imagine the newest iPhone just dropped, but Apple only made 1,000 units. Everyone wants one, but there aren’t enough to go around. What happens? Prices shoot up because people are willing to pay more to get their hands on one. 
Cost-Push Inflation 
“It’s more expensive to make stuff, so prices go up.”
This happens when the cost of production increases, forcing businesses to raise prices to cover their costs.
Higher raw material costs – If oil prices rise, transportation and production costs go up.
Higher wages – If workers demand higher salaries, businesses might increase prices to maintain profits.
Supply chain disruptions – If a major supplier shuts down, it gets harder (and more expensive) to produce goods.Let’s say the price of coffee beans doubles because of a bad harvest. Starbucks now has to pay way more for beans, so what do they do? They raise coffee prices, and suddenly your favorite latte costs $8 instead of $5. 
Built-In (Wage-Price Spiral) InflationWorkers want higher wages → Businesses raise prices → Workers demand even higher wages → Repeat forever.
If inflation is already happening, workers demand higher wages to keep up with rising costs. But when businesses raise wages, they increase prices to cover costs, leading to… more inflation. It’s a never-ending cycle unless the government steps in.
Hyperinflation (The Economy’s Worst Nightmare)Extreme, out-of-control inflation where money becomes basically useless.
Zimbabwe printed too much money, causing hyperinflation to reach 89.7 sextillion percent (yes, that’s a real number). Prices doubled every few hours, and people had to carry literal wheelbarrows of cash just to buy bread. 
Imagine prices keep rising 📈, but at the same time, the economy is barely moving, and people are losing jobs. Sounds impossible, right? Nope—stagflation is real, and it’s one of the worst economic disasters out there. 😵💸
In the 1970s, oil-producing countries (OPEC) cut oil supplies, sending fuel prices through the roof. ⛽🔥 Suddenly, everything that relied on oil (which is… a lot) became way more expensive. But instead of a booming economy, businesses struggled, unemployment soared, and growth slowed to a crawl.
So people weren’t just paying more for gas—they were also losing their jobs and watching the economy stall. Talk about a bad deal. 😬
🔹 Prices are high 💰 → Your money buys less.
🔹 Growth is slow 🐢 → Businesses don’t expand.
🔹 Unemployment is high 📉 → Finding a job? Good luck.
Governments usually fight inflation by slowing the economy or fight unemployment by boosting it—but stagflation means fixing one makes the other worse. It’s like trying to put out a fire 🚒… while standing in quicksand. 😵💫🔥
⚠️ Inflation + slow growth + high unemployment = stagflation.
⚠️ Caused by supply shocks (like oil crises) or bad policies.
⚠️ Governments struggle to fix it because every solution makes another problem worse.
⚠️ Worst-case scenario? The economy is stuck, everything gets more expensive, and people lose jobs. 😭
Hyperinflation might be economic chaos, but stagflation is a slow, painful economic nightmare. 😵💀
Governments and economists track inflation using special price indices:
Governments and central banks usually aim for 2-3% inflation per year. Why?
Too low (<2%) → Economy slows down, there is risk of deflation.
Too high (>5-10%) → Money loses value, life gets expensive.
Hyperinflation (>50%) → Absolute economic chaos.To control inflation, central banks use monetary policy (raising interest rates) or fiscal policy (taxes and government spending).
Inflation affects everyone—it makes groceries more expensive, rent harder to afford, and savings lose value over time. If it’s too high, people struggle. If it’s too low, businesses stop growing. That’s why governments are obsessed with keeping inflation just right.
So next time someone complains about prices going up, you can hit them with:
“Ah yes, classic demand-pull inflation caused by expansionary monetary policy.” 
Boom. 🎤 You just mastered IB Economics inflation without falling asleep. 🚀 Now go flex your knowledge (or go get that $8 coffee before prices go up again). 😉☕