What Causes Inflation and How Leaders Can Manage It

Inflation is a complex economic phenomenon that affects many facets of the economy, from people’s purchasing power to interest costs on the national debt. Understanding and properly managing inflation is an essential element of promoting a healthy, sustainable economy.

Generally, as the economy gets stronger, people demand more goods and services, which pushes companies’ prices up. When this happens across a wide range of companies and sectors, it’s called “inflation.” Inflation is often considered bad because it reduces the buying power of money. Inflation can lead to a reduction in consumer confidence and slow overall economic growth.

But in some cases, inflation is beneficial. It can raise the price of a stock or other asset, making it easier to sell at a profit. It can also raise the cost of government borrowing, which makes it cheaper for businesses to invest and consumers to take out loans.

The McKinsey Global Survey of 2023 found that respondents are less fearful about inflation today than they were last year, but they still view it as a significant threat to future economic performance. Learn more about what causes inflation and how leaders can manage it.

Inflation is a phenomenon that occurs when the supply of money outpaces economic growth. When this happens, one unit of currency loses its value and buys fewer goods and services. This is a deflationary force, but it can become more severe if it persists for extended periods of time.