Inflation

Inflation is a term which means the increase in the price of commodity whereas falls in the value of currency. The word itself means to inflate or increase. As per economics, inflation occurs when the value of money decreases against the rise in prices of commodities. For example, when there is more demand than the supply, the price will increase. On the other hand, when there is more supply of money, the value of money decreases. Inflation means the overall and general increase in the price of goods and services over a period of time.

Inflation also means a loss in purchasing power. This means as stated earlier, that the supply of money has increased than the demand. It does not mean that only the increase in the supply of money would result in inflation. Demand of commodities during scarcity of supply of the same can also increase prices of the commodity. Fall in supply of goods can be a result of slow manufacture. When manufacturing is slow, the price of the commodity is increased to make it lesser buyable by consumers hence resulting in a loss of purchasing power. Inflation means loss of purchasing power.

The supply of money is controlled by the central monetary authorities of the country. These authorities include the central banks which manage the supply of money through rise and fall of the interest rates and through open market policies etc.

Inflation is a vast subject to discuss, but to keep it simple, a moderate level of inflation is good for any economy. Moderate inflation as per economists lies between 5 to 8%. This rate of inflation helps keep equilibrium in the economy of any state. However, the current recession across the world has shown an increase in the inflation throughout the economies of the world. This was caused because of the reduced rotation of money in the open market by the consumer caused from the financial insecurity of recession.

Linus Orakles
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