discuss causes and effects of Inflation

Inflation, an economic plague, is one of the most talked-about words in the contemporary society. Inflation may be defined as “a persistent and appreciable rise in the general level or average of prices”. What are factors leading to inflation and what are its effects on the economy or society? This essay will give insight into these issues. There are various factors that can drive prices or inflation in an economy. Typically, inflation results from an increase in production costs or an increase in demand for products and services. Indeed, Cost-push inflation occurs when prices increase due to increases in production costs, such as raw materials and wages. The demand for goods is unchanged while the supply of goods declines due to the higher costs of production. As a result, the added costs of production are passed onto consumers in the form of higher prices for the finished goods. Another reason for inflation is demand-pull inflation which can be caused by strong consumer demand for a product or service. It is no doubt that when there’s a surge in demand for a wide breadth of goods across an economy, their prices tend to increase. While this is not often a concern for short-term imbalances of supply and demand, sustained demand can impact on the economy and raise costs for other goods leading to demand-pull inflation. To some, inflation signifies a struggling economy, whereas others see it as a sign of a prospering economy. Here, we examine some of the major effects of inflation. One of terrible results of inflation is that the cost of goods and services rises, the buying power of currency falls. Venezuela is a famous country because of not only a lot of Beautiful Miss World but also inflation. In there, a cup of coffee now costs a million bucks. People living Venezuela currently should pay a box of money for everyday goods such as one kilogram of corn flour, a toilet paper roll or a loaf of bread. On the other hand, inflation also encourages spending and investing. A predictable response to declining purchasing power is to buy now, rather than later. Consequently, cash will only lose value, so it is better to get your shopping out of the way and stock up on things that probably won’t lose value. For consumers, that means filling up gas tanks, stuffing food the freezer, buying shoes in the next size up for kids, and so on. For businesses, it means making capital investments such as purchasing gold and other precious metals. In conclusion, the dramatic increase of price due to of inflation having led to a plunge of money which in turn has brought about some important effects on not only economy but also society. Therefore, reducing inflation is a tough challenge for not only economist, but government as well.