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A general progressive increase in the prices of goods and services in an economy is known as inflation. It causes the purchasing power of money to decline.

Low and middle-income countries are more likely to be be vulnerbale towards inflation. Their central banks are not equipped enough to deal with medium and long-term inflationary pressures.

In high-income countries, contracts, wages, salaries, etc are all indexed to inflation. So, a rise in inflation is accompanied by an increase in wages in salaries. This reduces the harmful impact of inflation. Low and middle-income countries generally do not have this arrangement causing a decrease in purchasing power and other negative impacts.

Low-and middle-income countries face higher inflation rates because of budget imbalances. These imbalances in the budget may result from inadequate management of funds received from various sources.