What is INFLATION?

INFLATION

            Inflation is a condition of money value deficiency and price increment. When a country can not keep balance between the price, supply and production either due to material scarity or money value deficiency, inflation occurs. There are four kinds of inflation in classifications, low, moderate, high and hyperinflation. Percentage of low inflation is below 10% and in this category, it hasn’t effect so much in many countries. Percentage of moderate inflation is between 10% until 30% per year. High is the chronic state, 30% until 100% per year while hyperinflation is more than 100% and very dangerous to every economic system.

            Based on IMF’s classification, there are only three kinds of inflation. Acute, chronic and runaway inflation. There are cost push inflation if the cause is too much demand should be paid and demand push inflation when materials need more cost to be produced. Based on Keynes’s theory, inflation occurs because people’s need to be rich. They want something more than their economic state limits. The relation with the food producing, foods will meet the limit of scarity because the growth of population is faster than the growth of food production, as Malthus’s theory explain.

            Inflation creates loss for people who save their money in the bank. The money value will be lower while the price will be higher. However, people who borrow money in a certain amount will gain the profit because the amount of money will be easily gained to pay the bills. These are two reason why inflation is such a loss for many people. For national economy system, inflation makes import faster and export longer. People will buy foods and products from other countries because the price is less expenssive than the price of our own nature resources. It leads to speculative infestation for some people. They will only speculate to start a new business.

            Our government made three policies to overcome inflation represively. The first is monetary policy. This policy related to central banks and money circulation in public. In this policy, there known discunt polity, open market polity, and cash ratio polity. The second is fiscal policy. This policy related to income and outcome in countries and government. The last one is nonmonetary policy. Wages and costs also arranged in this policy.