Why does inflation happen? Terms that are familiar in the field of economics are often discussed. Apart from being frequently discussed, it turns out that the occurrence of inflation is also not a rare thing anymore.
Countries whose growth is developing often experience inflation. However, because of the different types of inflation is often invisible. Then, why does inflation occur?
This article will discuss the 10 reasons why inflation can occur. Before we get there, let’s first understand what inflation is and the types of inflation.
Definition of Inflation
A condition can be said to be inflation if under these conditions the price will rise continuously. Inflation can also occur when the amount of money circulating in society is more than what is needed.
Inflation is an economic phenomenon that cannot be eliminated completely. Efforts that can be made to deal with inflation is only by controlling or controlling it.
Inflation is an economic condition in a country. Where there is a tendency towards rising prices for services and goods in general. It happens in a long time or continue . Such a situation occurs because of an imbalance in the flow of goods and money in circulation.
Definition of Inflation According to Experts
1. KBBI (Big Indonesian Dictionary)
Inflation according to KBBI is a decline in the value of paper currency. This happened because there was too much money circulating too fast. This causes the prices of goods to increase.
2. BI (Bank Indonesia)
According to Bank Indonesia, inflation is defined in the Inflation Targeting Framework . Inflation is a general and continuous tendency for prices of goods to increase.
3. Winardi
Inflation according to Winardi is a period that occurs at a certain time. Occurs when the purchasing power of the monetary unit decreases. The notion of inflation can arise if the value of money deposited circulates more. When compared with the number of services or goods offered.
4. Ackley
Inflation is a continuous increase in prices. Ranging from goods to services in general.
5. Dwi Eko Waluyo
Inflation is a form of economic disease. These economic diseases often arise and are experienced in almost all countries. The tendency of an increase in the price of goods in general.
And it happens continuously. This theory is put forward in his book entitled Theory of Macroeconomics . The book was published in 2002 ago.
6. Sadono Sukirno
According to Sadono Sukirno, the notion of inflation is a process of increasing prices of goods in an economic system. This statement was stated in 2002 ago. In his book entitled Macroeconomics .
7. Central Bureau of Statistics
According to the Central Bureau of Statistics, inflation can be described as a tendency for the prices of goods and services to rise. In general, inflation occurs continuously. If the price of goods and services in the country increases, then inflation can occur.
Types of Inflation
This is an economic problem that every country in the world will definitely go through and feel. Inflation itself is divided into several types. Can be seen based on the severity, cause and source.
1. Types of inflation based on severity
When viewed from the level of severity, inflation is divided into 4 types. There is inflation of mild severity. There is also inflation with severe severity.
To find out more clearly, let’s briefly review the types of inflation that fall into its severity.
a. Mild inflation
First, mild inflation. Where this first type of inflation is fairly easy to control or handle. Just like its name, this inflation is still in mild limits.
Because it is still mild, this form of inflation does not have a very disruptive effect or influence on the economy of a country. Mild inflation conditions usually occur when there is a price increase below 10% each year.
b. Moderate inflation
The second type which is included in the level of severity is moderate inflation. In this type of inflation, there are already parties who feel disturbed due to inflation. Examples include employees or employees who have a fixed salary.
This is because this type of inflation based on its severity makes prices increase in general. The increase ranges from 10 percent to 30 percent annually.
C. Severe inflation
This type of inflation is inflation that causes the economy in a country to become chaotic. People generally will save goods for inventory.
In addition, people will also choose not to save in the form of money. Because the interest you will get is low. This heavy inflation occurs when an inflation occurs around 30 percent to 100 percent each year.
d. Hyperinflation
Hyperinflation is the most severe type of inflation. This condition will certainly make an economy in a country very chaotic. This happened despite the issuance of fiscal policy and monetary policy.
The chaos that occurs at this level of hyperinflation cannot be controlled. That means that inflation occurs to reach above 100 percent. In fact, it will continue to rise every year.
2. Types of inflation based on their causes
Apart from the level of severity, inflation can also be differentiated into the causes that give rise to it. There are at least 3 types of inflation that exist, when viewed based on the causes. Are as follows:
a. Demand pull inflation
This type of inflation arises because of a relatively high demand for goods and services. Even though the demand for these goods and services is very high, producers still have to be able to fulfill all these demands. Based on this, it is called demand pull inflation.
b. Cost push inflation
The second type of inflation based on why inflation can occur is cost push inflation. This second type is inflation that arises or arises because it is an increase in the cost of producing goods.
The increase in production costs will cause the price of goods offered to rise as well. That’s why it’s called cost push inflation.
c. Bottle neck inflation
Bottle neck inflation is a condition that arises because there are factors of demand and supply. In simple terms, this is a mixed inflation of cost push inflation and demand pull inflation. Then it becomes bottle neck inflation.
3. Types of inflation based on the source
The third type of inflation is inflation seen by source. Inflation is divided into two types. Here’s the explanation:
a. Domestic inflation
This inflation is a condition or condition whose source comes from within the country. Inflation occurs when the circulation of money in society is more than what the people themselves need with their money.
b. Imported inflation
The second type of inflation based on its source is imported inflation. This second type, the source comes from abroad. Where inflation occurs, because there is a country that buys and sells freely. Then there was an increase in prices abroad.
Why Does Inflation Occur?
1. Pull requests
In general, inflation is caused because the demand and supply of goods or services is very large. This happened within the country for a relatively long time. As well as generally needed by the community.
Inflation is very common in a country. Especially countries with fast economic growth. High employment opportunities will cause the income level of the community to be high as well.
2. There is a cost boost
The second reason why inflation can occur is due to an increase in production costs. It happened within a certain period of time. And it happens continuously.
In general, inflation due to rising production costs is due to the pressure of rising production costs. This inflation can occur in countries whose economies are growing and developing.
It can also occur in countries that are growing rapidly. However, the unemployment rate is quite low. In a country like this, the supply of labor will be limited. However, the demand for production goods will increase.
3. The money supply increases
This theory was put forward by the classics. They say that there is a relationship between the amount of money in circulation and the prices of goods.
If the quantity of goods remains but the amount of money in circulation is greater, then prices will be expensive. If this happens continuously, then it is called inflation.
4. Increase in supply and demand
The reason why inflation can occur is because of an increase in demand and supply. This happens because there is an imbalance between demand and supply.
When the demand for a good or service increases, it will result in the supply of factors of production and goods decreasing.
Meanwhile, substitutes or substitutes for these goods and services are limited or even non-existent. This unbalanced situation will cause the prices of goods and services to rise.
5. Consequences of people’s behavior
This is known as expected inflation. This inflation occurs as a result of people’s behavior. People who think that economic conditions in the future will be even better.
This type of inflation is relatively difficult to detect. This is because the incidence of inflation is not too significant.
6. Rigid economic structure
A producer cannot quickly prevent the increase in demand caused by population growth. In the end, demand is difficult to meet when there is population growth.
7. Economic and political chaos
If a country is in an insecure condition, then the price of goods in that country will tend to be expensive. This has also happened in Indonesia.
Precisely when there is political and economic turmoil. This happened back in 1998. At that time, the level of inflation in Indonesia even touched 70 percent.
Even though the inflation rate tends to be normal. It ranges from 3 percent to 4 percent.
8. Company decisions
This is one of the reasons why inflation can occur. Sometimes, inflation can occur naturally. When supply decreases. And the demand is increasing.
However, at other times inflation occurs because it is regulated by the company. Companies that make popular items often increase their prices. This is done only because consumers are willing to pay the desired price.
Companies will also increase prices freely. Especially when the goods being sold are something that consumers really need. Examples such as the daily needs of gas and oil.
9. National debt
When the debt in a country increases, the government generally has two options. First, the government can raise taxes. Second, the government prints more money to pay off the country’s debt.
When taxes increase, businesses will react. They will increase the price. This was done to offset the increase in tax rates at the company.
If the government chooses the second option, it will have an impact on the circulation of money in society. This will lead to price increases and currency devaluation.
10. Abroad
Inflation does not only come from internal factors. However, inflation can also come from external factors. External factors in question are factors from abroad.
An example is an increase in the price of crude oil. The increase in other imported commodities also had an effect. Such as food and beverage ingredients. What’s more, this increase has been ongoing.
That is a brief explanation of why inflation can occur. Find terms and information related to other economic fields at www.sinaumedia.com . sinaumedia as #FriendsWithoutLimits will always present interesting articles and recommendations for the best books for Sinaumed’s.
Author: Wida Kurniasih
Source: from various sources
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