The discussion of inflation today has ceased to be the prerogative of state authorities and the media. This concept, as well as its impact on the economy and the wallets of citizens, are worried by an increasing number of ordinary people. This material will help readers understand what inflation is. In addition, the article will discuss the inflation index or the consumer price index.
What is inflation?
Surely most readers, to one degree or another, already have an idea of the phenomenon under consideration. Inflation is an increase in the price level of goods and services over a significant time period. In other words, this is a decrease in the purchasing power of the same amount of money. It should be noted right away that not every increase in the value of goods and services relates to inflation. There are frequent cases when the increase in prices is speculative in nature, but there are no objective economic reasons for this.
Reasons for inflation
There are several main factors that can cause an increase in the cost of goods and services and a decrease in the “price” of monetary units. First of all, it is necessary to note the excess emission of the national currency. When the money in circulation becomes more than the required amount, inflation occurs. But not only the issue can lead to an oversupply of funds. Such a popular banking product as lending also contributes to an increase in cash in circulation and, as a result, can cause inflation.
It should be noted that the decline in the purchasing power of the currency is a common phenomenon in the world. Even in countries with developed market economies, an inflation rate of 2% per year is considered a normal indicator.
Another reason for raising prices for goods and services is the increase in energy prices. For example, gasoline, diesel and natural gas.
In addition, inflation is caused by a decrease in production and an economic recession in the country, provided that wages are maintained. This leads to an oversupply of money supply in the hands of the population. At the same time, this amount of currency is not supported by the volume of goods and services produced.
