Introduction to inflation
Inflation is the increase in prices, taxes, and cost of living in any country. Today this is a prevalent issue in every country. Due to this issue normal economic development of any country becomes low. Conceptually, inflation refers to the Latin word inflate, and it refers to the common trend of prices not changing in any particular price. For example, if people choose to buy more potatoes than tomatoes potatoes consequently, become more expensive and tomatoes less expensive.
Causes of inflation
The main cause of inflation is when the total demand for goods and services increases to exceed the supply of goods and services. The more demands put pressure on prices of goods and services consequently, inflation increases.
On the other hand, when the prices of goods and services increase the cost of production increases. the ratio of unemployment to job vacancies increases then inflation also increases.
There are 7 reasons for inflation
1; Demand-pull inflation
2; Cost pull inflation
3; Devaluation
4; Rising wages
5; Rising monetary
6; Increased money supply
7; Fiscal policies
No doubt inflation has bad effects on the economy of any country as well as individuals.
It becomes the reason for the imbalance between supply and demand and due to this issue supply shock generally, when prices are high then demand for wages also becomes high.
Historical Examples of Inflation
Hyperinflation is the rapid, massive increase in prices. In Zimbabwe, prices become double every day
In Hungary, after World War Two inflation held the record for the most extreme monthly inflation rate, prices doubled every 15 hours
In Yougosalavia inflation hit 50% a year
Venezuela currently, has the highest inflation rate in the world.
Pakistan is also a victim of inflation. Turkey has also large inflation rate from last year due to monetary policy by the Ankara Government
How Government Try to Control and Measure Inflation
The Government can overcome inflation through fiscal policy, but it can assist in fighting inflation.
The Government should reduce spending taxes to reduce inflation, in this way, inflation can be controlled.
The Government should control inflation through Open Market Operations and monetary and fiscal policies so that inflation can be controlled.
Strategies For Protecting Your Finances Against Inflation
The best way to save money to avoid the effects of inflation is by checking your interest rates.
You should keep investing for long-term saving
Gold is also anti inflation asset which through we can save money
You should also open high savings accounts.
Conclusion on Inflation
Finally, inflation is due to the high prices of goods and services, and the most common cause of inflation is an increase in the money supply. Consequently, inflation’s effect on any economy can be positive and also negative.