What is Inflation? Everything You Need to Know

As experts in property and finance, we understand how important it is for potential mortgage seekers to have a solid grasp of economic concepts that can influence their financial decisions. Today, we’ll delve into the world of inflation – what it means, its different types, what drives it, and its implications on property and finance. So, let’s get started!

What is inflation?

Inflation is a fundamental economic concept that refers to the general increase in prices of goods and services in an economy over a specific period of time. In simpler terms, it means that your purchasing power decreases as the cost of living rises.

As prices rise, a pound today won’t buy the same amount of goods and services tomorrow. The inflation rate, on the other hand, measures the percentage change in the price level over a given period, usually a year.

What is the current inflation rate?

The inflation rate can vary over time and across different countries. To stay informed about the current inflation rate in your region, keep an eye on reputable financial news sources or government publications.

Central banks often publish inflation data regularly, and it’s an essential metric for policymakers and individuals alike to monitor economic health.

What drives inflation?

Understanding what is causing inflation is crucial in navigating its effects on the real estate market and mortgages. While the factors influencing inflation can be complex, let’s explore some of the key drivers:

1. Demand-pull inflation: This occurs when the overall demand for goods and services surpasses the economy’s ability to produce them. Increased consumer spending, a booming economy, or expansionary fiscal policies can lead to demand-pull inflation.

2. Cost-push inflation: When the cost of production for goods and services rises, businesses tend to pass on these increased costs to consumers, leading to cost-push inflation. Factors like rising wages, higher raw material prices, or disruptions in supply chains can trigger this type of inflation.

3. Built-in inflation: This type of inflation is also known as wage-price inflation. It occurs when workers expect higher wages to keep up with the rising cost of living, and businesses, in turn, raise prices to accommodate these increased labour costs, creating a self-perpetuating cycle of inflation.

4. Monetary factors: Inflation can also be influenced by monetary policies implemented by central banks. By adjusting interest rates, the money supply, or other financial instruments, central banks aim to control inflation and stabilize the economy.

Understanding the types of inflation

Inflation can be categorised into different types based on its severity and impact. Let’s take a closer look:

Mild inflation

Also known as creeping inflation, this is when the inflation rate is relatively low and manageable, usually in the range of 1-3% annually. Mild inflation is generally considered healthy for an economy, as it encourages spending and investment.

Galloping inflation

This type of inflation is more aggressive than mild inflation, with the inflation rate soaring to double digits. Galloping inflation erodes purchasing power rapidly and creates economic instability.


The most extreme form of inflation, hyperinflation, is characterized by skyrocketing prices, often exceeding 50% per month. In such cases, currencies become practically worthless, leading to significant socioeconomic consequences.

What is hyperinflation?

Hyperinflation is a rare and disastrous economic phenomenon where prices of goods and services increase at an astronomical rate. While it is thankfully uncommon, it has had devastating consequences in various historical instances.

Hyperinflation typically occurs due to a combination of factors, such as excessive money printing, a collapse in the value of the local currency, loss of confidence in the financial system, and political instability. This combination creates a self-reinforcing loop, where people lose faith in the currency, leading them to spend it as quickly as possible, which, in turn, further fuels inflation.

One of the most infamous cases of hyperinflation was the German Weimar Republic in the 1920s. The country printed vast amounts of money to finance war reparations, leading to such rapid devaluation of the currency that people had to carry wheelbarrows full of money to buy basic goods.

What does inflation mean for mortgage seekers?

As a potential mortgage seeker, it’s essential to understand how inflation can impact your ability to purchase a property and manage your finances:

1. Purchasing power: Inflation erodes the purchasing power of money over time. If inflation outpaces wage growth, it can become harder for individuals to afford properties, even if their income increases.

2. Interest rates: Central banks often adjust interest rates to combat inflation. During periods of high inflation, interest rates tend to rise, making mortgages more expensive. This can reduce affordability and dampen the demand for homes.

3. Fixed-rate mortgages: Opting for a fixed-rate mortgage can provide protection against future inflation-driven interest rate hikes. With a fixed-rate mortgage, your interest rate remains unchanged for the entire loan term, offering stability in uncertain economic times.

4. Property values: Inflation can affect property values, both positively and negatively. While it may increase the value of real estate assets over time, it can also lead to higher construction and maintenance costs.

How to navigate inflation’s impact

While inflation is a natural part of any economy, there are strategies that mortgage seekers can employ to navigate its effects:

1. Financial Planning: Stay informed about the current inflation rate and factor it into your long-term financial planning. Consider working with a financial advisor to create a strategy that accounts for inflation’s impact on your savings and investments.

2. Budgeting: Maintain a budget that takes inflation into account. Allocate funds for potential price increases in essential goods and services to avoid financial strain.

3. Real Estate Investments: Real estate has historically been considered a hedge against inflation. Owning property can help preserve wealth as property values may appreciate in line with inflation.

4. Mortgage Terms: When choosing a mortgage, carefully evaluate different options and consider the prevailing economic conditions. A fixed-rate mortgage, as mentioned earlier, can provide protection against rising interest rates.


Inflation is a fundamental economic concept that can significantly impact property and finance, especially for those seeking a mortgage. Understanding its drivers, types, and implications is vital for making informed financial decisions. By staying informed, planning ahead, and employing smart financial strategies, you can navigate the effects of inflation and make sound choices for your mortgage and property investments.

Remember, financial markets and economic conditions can change, so it’s crucial to stay up-to-date and adapt your strategies accordingly. Always seek professional advice when making significant financial decisions to ensure you’re on the right path towards a secure and successful financial future.

If you want to discuss mortgages in the current climate, get in touch with our expert team today.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.