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 Causes of Inflation

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mrthought



Number of posts : 111
Registration date : 2011-03-03

PostSubject: Causes of Inflation    Wed Jun 08, 2011 7:37 am

Increase in the price of consumer goods and a service over a period of time in an economy is called inflation. Inflation leads to the rise in the prices of commodities which results decrease in the purchasing power of a commodity. Generally speaking, inflation is a general part of an economic system. Experts on economic affairs expect inflation as a normal thing. However, when inflation goes beyond the limits then it becomes a serious issue for the economic planners and the citizens of an economy.
There are both some internal and external issues that cause inflation. Some of the major causes of inflation are discussed below.
Causes of Inflation
Excessive Money
Excess of money supply is one the major causes of inflation. When demand is some what equals to supply then it might not be an issue. However, when demand exceeds supply inflation will arise. It is obvious that when one has extra money in his pocket, the desire to spend money also increases. Excessive money supply is also one of the causes of inflation and a challenge for the economic planners.

Increase in Cost of production
An increase in the cost of production of products is also one of the causes of inflation. The employer when perceives that the cost of production has increased will definitely increases the cost of cope up the raised prices as they are eager to earn more profits. Due to increase in the cost of production the prices of products rises which is ultimately puts burden and paid by the consumers.
Anticipatory Inflation
When the conditions of economy are not so feasible and inflation is on a rising trend workers expect inflation in the coming days due to which they demand an increase in wages from their employer. And if they won't increase their wages they would call for a strike. Therefore they have to increase wages which ultimately results in inflation. Anticipatory inflation is also one the Main Causes of Inflation.
National Debt
An increase in the national debt is also one the main causes of inflation not only in the under developed but also in the developed countries. When a country is having budget deficit i.e. income is less than the expenditure it has to borrow money from the financial institutions and central banks. The money borrowed have to be returned along with the interest. Therefore, In order to keep pace with the increasing loan tenure and the high interest, the country often increases price of consumer goods and services. National debt is also one of the main Causes of Inflation.
In general, the Causes of Inflation can be attributed to almost anything. But since the start of 2011, there have been many problems that have not helped. Prices of commodities have increased, crops have been damaged, and Dollar has lost its significance. As these things worsen, it will affect each and every one of us in 2011 & 2012.


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