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There's stuff on the FAQ page about this. Governors (infrastructure tech 5) and declaring bankruptcy are the only ways of reducing inflation.
 
Inflation is always BAD. Try to have a low inflation and pump in money into science instead. Governors seem to be very efficient to lower inflation. Bankruptcy has many disadvantages (lower morale and lose all current science investments). There are also random events that will lower and increase inflation. Some are temporary and some permanent.