In economics the term inflation refers to a general increase in level of prices. Economists distinguish between two types of inflation, namely: demand pull inflation and cost push inflation. Each of these happens for different reasons though both have the same effect of increasing prices.
An increase in prices chokes off excess demand
Demand Pull Inflation
Demand pull inflation is an increase in prices caused by an increase in demand that is not matched by an equivalent increase in supply. As demand starts to outstrip supply, sellers can raise their prices and still sell all their goods. Demand pull inflation is often driven by an expanding economy. This phenomenon is commonly described as "too much money chasing too few goods".
Cost Push Inflation
This type of inflation is often driven by the increased costs of raw materials which then influence the prices of all other goods in the economy. An example of this is the recent increase in oil price by over 40% in a year. Other raw materials such as wheat and steel have seen similar increases. This means that industries that rely heavily on these materials, such as travel or energy, face larger costs and pass these onto the consumer leading to cost push inflation.
It is generally agreed that excessive inflation or hyperinflation can lead to many problems and instabilities and therefore is a primary concern of most world economies. The goal of most mature economies, like the UK, is often to control the level of inflation and to keep it low. The Bank of England is employed in this respect to try and maintain price stability and promote economic growth.