This may be one of the most familiar words in the economics field “ Inflation ''. You may see the word '' Inflation “ in headlines news and also have heard when elections are competitive with each other, the only word they told is combated inflation . So, let's see what is inflation and how many types it has.
What is inflation?
Inflation is the rate at which prices increase in a given period. Inflation is usually a broad measure, such as an overall increase in prices or an increase in the cost of living in a country. But it can also be calculated more narrowly—for example , certain goods (such as food) or services (such as school fees). In any case, inflation means that the related goods and/or services become more expensive over a certain period of time, most commonly a year.
How can we know that?
While it is easy to measure the price change of a single product over time, human demand is not limited to just one or two products. Individuals need a large variety of products as well as a large number of services to live a comfortable life. They include commodities such as food, metals, fuels, utilities such as electricity and transportation, and services such as health care, recreation, and labor. Inflation is designed to measure the overall impact of price changes on diversified products and services. It allows a single value to represent an increase in the price level of goods and services in an economy over a period of time.
Prices rise, which means that fewer goods and services are bought with one unit of currency. This loss of purchasing power affects the cost of living for the general public, ultimately leading to slower economic growth. The consensus among economists is that persistent inflation occurs when a country's money supply grows faster than its economy grows. To address this, monetary authorities (in most cases central banks) take the necessary steps to manage the money supply and credit in order to keep inflation within permissible limits and keep the economy running smoothly.
How many types does inflation have?
There may be three major types of inflation; demand-pull inflation, cost-push inflation, and built-in inflation.
Demand-pull inflation- describes how demand for goods and services drives up their prices. If something is in short supply, you can usually get people to pay more for it. Are you still buying a plane ticket for your vacation even though the price is Much higher than normal? This is a good example of demand-pull inflation.
Cost-push inflation- It usually kicks in when demand-pull inflation strengthens. When the cost of raw materials for a business increases, the business in turn must raise prices regardless of demand. For example, when chicken prices keep going up, eventually your favorite restaurant will need to charge more for chicken sandwiches.
Built-in inflation- As demand-pull inflation and cost-push inflation takes place, employees may start asking their employers for a raise. If employers cannot keep their wages competitive, they may end up with labor shortages. If a business raises workers' wages or salaries and tries to maintain profit margins by raising prices, that's intrinsic inflation.
Hope this article would help you to understand more about inflation and how many types it has. In 2022, inflation in the US and around the world rises to levels not seen since the early 1980s. While there is no single reason for the rapid rise in global prices, a combination of events has pushed inflation to such high levels.
