The Effect of Inflation

maxresdefaultYou must have heard people saying about how low-priced things were in the past. Petrol that cost only a few cents is over a dollar today or a brand new car may have cost only $3,000 – $5000 compared to $20,000 today. Inflation occurs when there is a sustained hike in the price of goods or money loses some of its value. It is measured in percentage. As inflation increases, every dollar you have buys a very small amount of goods. The worth of a dollar does not remain constant at the time of inflation.

Inflation has many reasons. Typically, rise in inflation is occurred when the economy is good. If the total demand in an economy increases faster than the total supply, we see a higher inflation rate. It can also happen when the raw materials that manufacturers require has an increase in price or when labour’s that produce goods demand more money. Due to this, the end product becomes costlier and sold at a higher price.

According to some economists – central banks do not do much to regulate how much money there is in the country. There may be more money supply around as compared to goods. People want to purchase more goods or services, the demand of products gets higher and hence prices increase. Inflation is not caused by one country alone. Most of the times a country cannot control the increase in prices of certain products as it would like to, as they don’t have any resources of its own and have to import resources. It has to pay a high price for these imported resources.

In conclusion, inflation is a sign that the economy is rising. It is usual when prices increase by a few percent every year. Trades may not want to borrow money and invest at the time of high inflation rate. Consumers may not wish to buy goods any more. Workshops may get stuck with goods they cannot sell and as a result workers become jobless.

It is not easy to fight inflation. Banks can make it difficult for people to get loans and have more money by regulating the interest rates. Governments influence inflation when they increase or decrease taxes and other parameters that effect the money supply in the market.

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