This blog will inform you about Inflation. First of all, we will discuss the concept of Inflation and what is it about. Then we will discuss the Causes of Inflation. It will also explain the Types of Inflation. This will also elaborate the Positive Effects of Inflation. It will also explain the Negative Effects of Inflation. Then it conclude the topic with a short conclusion. This blog contains Concept, Causes, Types and Effects of Inflation in detailed form.
Meaning, Causes, Types and Effects of Inflation.
Meaning of Inflation:
Inflation means increase in the prices or money supply over a period of time. Increase in prices or money supply can cause the purchasing power of a currency to decline.
It can be seen negatively as well as positively according to the person’s perspective and the rate of change caused by it. The people with property, multiple businesses and assets may see inflation in a positive manner. But the people will less resources and assets see inflation as their enemy which is not letting them survive in the battle of life needs.
Inflation aims the measurement of overall impacts of price changes for a diverse range of goods and services. And it end up providing a single value representation of increase in the price of goods and services in a specific period of time in an economy.
As the prices are increased after inflation, one unit of any currency can buy fewer goods and services than before. This loss of power of currency effects the quality of living, cost of essential needs for public and cause economic deceleration.
Inflation can be proved different for different people. Some people gets unlimited benefits from inflation while other people are not able to fulfil their basic needs of life and to survive. These are two opposite properties of inflation that effect in two different ways. This blog contains Causes, Types and Effects of Inflation.
Causes of Inflation:
Following are the main causes of Inflation:
Increase in Wages:
Inflation will obviously increase the amount of wages (fixed payment for workers or services), and this will make the services and payments more expensive. This will increase difficulties for consumers. This is the main cause of inflation.
Increase in price of Raw-Material:
Increase in the prices of all the things will definitely increase the price of raw material for the manufacturing of goods and products. This will make raw-material expensive for industry owners. This can cause inflation to occur.
Increase in Taxes:
With the increase in tax prices inflation is the only decision to take against it. This will increase profit for tax consumers. This condition cause inflation to occur. When there is an increase in the prices of goods and products, there is automatically an increase in tax prices.
Decline in Productivity:
When the overall productivity is decline, inflation helps to fulfil consumer’s needs by increasing prices of the products. That’s why inflation can occur. Inflation can effect the people in a negative manner as they feel that they cannot fulfil their needs with available amount of money.
Increase in Money Supply:
When the money supply is increased it automatically increase inflation. In this way the inflation is applied. It has a direct effect on inflation. In the condition of inflation more amount is given to the consumer to buy all useful goods and the result is inflation.
Causes of Inflation
Types of Inflation:
Following are three main types of Inflation:
Demand-pull Inflation:
Occurs when demand for goods and services exceed supply, leading to increase in prices. In this way inflation arises. Request pull expansion happens when interest for labor and products offsets supply, which stays stable or drops. Request pull expansion brings about more exorbitant costs. A low joblessness rate is irrefutably great as a general rule, yet it can cause expansion since additional individuals have more discretionary cashflow. Albeit expanded government spending is great for the economy, it might prompt a shortage of specific products followed by expansion.
Cost-push Inflation:
Arises due to rise in production costs, such as higher wages or increased raw material prices. This condition automatically creates inflation in an economy. Cost-push expansion happens when by and large costs increment because of expansions in the expense of wages and unrefined components. Cost-push expansion can happen when greater expenses of creation decline the total stockpile in the economy. At the point when creation falls while interest for merchandise stays changed, cost increments from creation are gone to shoppers, making cost-push expansion.
Built-in Inflation:
This type of inflation results from the expectations of future price increase, leading to wage amounts and higher costs. This inflation have a great effect and no reason from present time. Underlying expansion is a kind of expansion that outcomes from previous occasions and continues in the present. Inherent expansion is one of three significant determinants of the ongoing expansion rate. In Robert J. Gordon’s triangle model of expansion, the ongoing expansion rate rises to the amount of interest pull expansion, cost-push expansion, and underlying expansion.
Positive Effects of Inflation:
Following are some positive effects of Inflation:
• Encourage Spending:
Inflation encourages to spend the money instead of saving it. It is beneficial for the investors and property owners. It encourages spending for those who have a huge amount of money and can afford expensive goods and other things that we can buy from money.
• Higher Prices equal Higher Revenues:
The higher will be the prices, the higher revenue and profit the companies will get. This is a positive thing for huge company’s owners. People who have high investments get high revenues and this results in high profit rates, so this is useful for investors.
• Reduced Competition:
Higher inflation can make it difficult for businesses to adjust finances and create opportunities for new companies to gain market share. During inflation there is reduced competition as there are less investors and less companies competing with each other.
• Access to Funding:
Funding becomes easier for banks and private investors in the condition of Inflation. During inflation you can easily persuade the public to raise funding for any good cause and people give funds to NGOs and other organizations that need funds to help people or for other reasons.
• Improved Customer Service:
Inflation can be beneficial for customer service improvement because services rates are increased and employees do more effort than before. This is a positive sign for a company or industry. Inflation cause the improvement of customer service as the services becomes expensive and companies tries to satisfy the customers.
These were some of the positive effects of Inflation.
Negative effects of Inflation:
Following are some of the negative effects of Inflation:
• Lost Purchasing Power:
It is obvious that inflation will disturb the purchasing power of the consumers so this will effect the interest of the consumer on expensive goods and services and they will start to avoid them. It is difficult for small investors to purchase goods and properties.
• Higher Interest Rates:
Inflation will play a vital role in increasing the rates of interest. This will not be a good news for most of the consumers. If the prices of goods are high, eventually the interest rates are high. In this, the people who have to pay money with interest have a difficult task.
• Higher Prices of Everything:
Inflation increases the prices of every product and service. So, a huge part of population (i.e. the poor, the lower middle class and middle class) will not be able to afford expensive goods and services. Everyone cannot afford the essential goods in the condition of inflation.
• Economic Growth Slows:
As the buying is slowed, the economic growth is also slowed. So, Inflation can slow down the Economic Growth at a great extent. Inflation and economic growth are inversely proportional to inflation. In this way inflation is not good for economic growth.
All of these are basic negative effects of Inflation.
Conclusion:
Inflation means the increase in prices of goods and services over a specific period of time. It can cause many positive as well as negative impacts. Inflation is good for the investors and people with assets, but very bad for the consumers and poor people. It can make profits for the company owners and businessmen and can cause great loses for the consumers of the products and services. Inflation also effects the economic growth at a great extent. We should find ways to deal with inflation in a better way and we should introduce more strategies to reduce the causes of inflation. We learnt about the Causes, Effects and Types of Inflation.
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