Inflation is . Inflation is a rise in the average price of goods over time One of the first acts of the Labour government in 1997 was to make the Bank of England independent –with a mandate to achieve low inflation Some questions about inflation Why is inflation bad? –Inflation does have bad effects, but some popular criticisms are based on spurious reasoning What are the causes of inflation? What can be done about it? The quantity theory of money The quantity theory of money says that changes in the nominal money supply lead to equivalent changes in the price level (and money wages) but do not have effects on output and employment