The current financial turbulent times has seen most people wondering
what inflation is. Inflation is in fact the increase in the prices of products
and services and also the continuous increase in the prices of these products
and services. Inflation usually occurs when the currency of the country has
been devalued and hence the population of the country end up paying more for
the products and services required.
Experts usually concur that when the inflation is mild the economy
grows at a healthy rate. Since the population of the country buys products and
services now to prevent excessive spending in the future due to price rises the
current demand increases. This current demand helps the economy of the country
grow. Hence any economy can sustain an inflation rate of at least 2 percent.
Causes of Inflation:
Inflation can occur due to a variety of reasons. However the main
reason for the inflation is the demand and supply factor. In case there is more
demand for products and services but the supply remains static the price
increases thus causing inflation. Similarly inflation is also caused due to
excessive money supply in the hands of the general public. When the money
supply with the general public increases the demand for products and services
increases, but since the supply remains the same the prices of the products and
services shoot up causing inflation.
Types of Inflation:
There are also many types of inflation with asset inflation being
the most commonly occurring inflation in many countries. US has seen asset
inflation in the real estate sector while the Middle East oil rich countries experience
asset inflation with respect to the prices of crude oil. Other types of
inflation include hyperinflation experienced in Germany before World War II and
stagflation which was experienced in USA in the early to mid 1970s.
