Inflation: In terms of economics, inflation can simply be defined as an elevation in the general price levels of services and goods in the economy over a particular period of time. Whenever the price level increases it causes depletion in the buying capacity of the currency, so inflation can also be defined as erosion in the purchasing power of money i.e. a loss of the real value of money in an internal medium of the exchange. One most common measure of price inflation is inflation rate. Inflation rate can be calculated as the yearly percentage change in the general price index (Consumer Price Index to be used most commonly) over time.
Reasons
of inflation: Situation of inflation can occur at any time, and
its occurrence depends upon a number of reasons. No specific cause is
responsible for the occurrence of inflation. But some proposed reasons of the
inflation are mentioned below-
1. If the
production cost of various services and goods increases then naturally the
prices of the final products would also increase. This leads into the situation
of inflation.
2. Inflation
occurs when industries and business houses increase the total prices of their
services and goods in order to amplify their profit margins. This category of
inflation is called as “administered price inflation” or “pricing power
inflation”. This type of inflation is tedious to tackle because various
industries and business houses have the complete authority/power of pricing
their services and goods.
3. A situation
of inflation occurs when a specific section of a mass industry increases the
prices of its services and goods, because this step of a particular section of
a mass industry will produce considerable effects on various other sections of
industry also. For example- increase in the price of crude oil will
spontaneously cause increase in the train fares and airfares.
4. A special
category of inflation known as “Fiscal inflation” occurs, because of excessive
spending of the government. Fiscal inflation was first observed in United Sates
of America at the time of President Mr. Lydon Baines Johnson.
5. One another
type of inflation is known as hyperinflation. Hyperinflation occurs during or
after a heavy war. This inflation is also popular with the name of galloping
inflation.
6. Another
severe type of inflation is known as stagflation. It occurs in an economy which
faces economic stagnation and high unemployment rate.
So we can say
that inflation has some serious consequences on the economy as a whole. So the
government should make some strict policies to curb inflation and thus help the
country to have a stable economy