What is the inflation ?
What Causes Inflation?
There are many reasons why inflation occurs. But basically there are 3 sources.
It happens when the supply of goods or services, that is, the provision of a service or good to buyers at a certain time, market and price, cannot keep up with the increase in total demand. The reasons for the appearance of this resource can be as follows:
When the country’s economy enters the recovery process
When unemployment rates decrease
If the money supply increases, so does the consumption
If the supply cannot meet the demand in the country’s economy, prices will rise. This causes inflation. In other words, it is the situation where the demand for imported and/or produced goods increases faster than the production and import capacity of the economy, that is, the supply. Thus, since there will be more demand for less products, prices will increase.
This concept, which is also called cost inflation, is that the increase in the prices of the inputs used in the production of goods and the provision of services increases the inflation rate. Thus, as the cost increases, the aggregate supply decreases. Although it is similar to demand inflation in this respect, it differs from each other due to different sources.
It is the situation in which people increase the prices of the goods or services they offer according to future inflation forecasts in order to maintain their economic situation in the same way, when they think that the current inflation will continue in this way in the future. In other words, it is the inflation that occurs as a result of the buyers trying to get the expected inflation difference in the future while determining the price of the goods.
So what are the effects?
We can list the negative effects of inflation on society as follows:
📍Inequality in income distribution
📍Reduction in investments
Decreased propensity to save
Increase in job uncertainty
📍Rise in borrowing costs
In addition to all these, an increase in inflation in a country also lowers the value of the country’s currency. This can lead to problems that will take time to solve for the country’s economy.
Inflation refers to the rate at which the general price level of goods and services in an economy increases over a certain period of time. It means that the purchasing power of a currency is decreasing as the cost of goods and services increases.
Inflation is usually measured by the Consumer Price Index (CPI), which tracks changes in the prices of a basket of goods and services consumed by households. When the CPI increases, it indicates that the cost of living is going up, and each unit of currency buys fewer goods and services than before.
Inflation can be caused by various factors, such as an increase in the money supply, higher demand for goods and services, and lower supply of goods and services. Inflation can have both positive and negative effects on the economy, depending on its rate and duration. A moderate level of inflation can stimulate economic growth by encouraging spending and investment, but high and persistent inflation can erode consumer purchasing power, reduce investment, and destabilize the economy.