“I am not a financial advisor, or consultant giving advice on financial terms, it is just a general view about inflation”.
Inflation refers to the general increase in prices of goods and services over time, resulting in a decrease in the purchasing power of money. By calculating the rate of inflation, you can find out how fast prices are rising over a set number of years. For example, if the inflation rate is 8%, it means that the prices of goods and services, on average, have increased by 8% over a specified period.
Inflation can have both positive and negative effects on an economy. In other words, inflation erodes the value of money.
The main causes of inflation can be grouped into three broad categories:
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- Demand-Pull Inflation: This occurs when there is excessive demand for goods and services compared to their supply. This increases demand and leads to price rises.
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- Cost-Push Inflation: This type of inflation happens when there is an increase in production costs, such as labour, raw materials, or energy.
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- Monetary Inflation: This refers to the increase in the money supply within an economy. When there is too much money circulating in the economy relative to the available goods and services, it can lead to inflation.
Inflation can rise gradually over time due to a combination of these factors. It is influenced by a range of economic variables, including interest rates, government policies, fiscal measures, exchange rates, and global economic conditions. Inflation is typically measured using various indicators, such as the Consumer Price Index (CPI), which tracks the price changes of a basket of goods and services commonly purchased by households.
It is important to note that inflation is a complex phenomenon and is influenced by a multitude of factors. The decisions and actions of various stakeholders, including central banks, governments, and market participants, collectively contribute to the level of inflation in an economy.
The decision to increase or decrease inflation is typically influenced by a combination of factors and is not determined by a single entity. Inflation levels are influenced by a variety of economic factors and can be affected by both governmental and non-governmental entities. Central banks, such as the Federal Reserve (in the United States), European Central Bank (in the Eurozone), or the Bank of England (in the United Kingdom), have the authority to set monetary policies.
“Inflation is the time when those who have saved for a rainy day get soaked. The first panacea for a mismanaged nation is inflation, the second is war. Both bring a temporary prosperity; both bring permanent ruin”.