10 Causes Why Inflation Can Happen

10 Causes Why Inflation Can Happen

Nikereact.org –┬áThis term which is familiar in the field of economics is often discussed. In addition to being often discussed, it turns out that the occurrence of an inflation is also not a rare thing anymore.

Developing countries often experience inflation. However, because of the different types of inflation, it is often not visible. Then, why inflation can occur?

This article will discuss 10 reasons why inflation can occur. Before we get to that, let’s first understand what inflation is and the types of inflation.

Definition of Inflation

10 Causes Why Inflation Can Happen

Inflation is a situation that often occurs in the economic field. Inflation is a situation that occurs because of an increase in prices. The increase in prices occurred in general.

A condition can be said to be inflation if in that condition the price will rise continuously. Inflation can also occur when the amount of money circulating in the community is more than what is needed.

Inflation is an economic phenomenon that cannot be completely eliminated. Efforts that can be made to overcome an inflation is only to control or control it.

Inflation is a state of the economy in a country. Where there is a tendency towards an increase in prices of services and goods in general. It happens in a long time or continue. Such a situation occurs because of the imbalance of goods and the flow of money in circulation.

Understanding Inflation According to Experts

Inflation is defined by several sources and experts. The following are some definitions of inflation according to experts. Including the following:

1. KBBI (Big Indonesian Dictionary)

According to the KBBI, inflation is a decline in the value of paper currency. It happened because there was too much and too fast money circulating. This causes the price of goods to increase.

2. BI (Bank Indonesia)

According to Bank Indonesia, inflation is defined in the Inflation Targeting Framework. Inflation is a general and continuous increase in the price of goods.

3. Winardi

Inflation according to Winardi is a period that occurs at a certain time. Occurs when the purchasing power of a monetary unit decreases. The definition of inflation can arise if the value of the money deposited is circulating more. When compared with the number of services or goods offered.

4. Ackley

Inflation is a continuous increase in prices. Starting from goods to services in general.

5. Dwi Eko Waluyo

The definition of inflation is one form of economic disease. These economic diseases often arise and are experienced in almost all countries. The tendency of rising prices of goods in general.

And it happens continuously. This theory was put forward in his book entitled Macroeconomic Theory. The book was published in 2002 ago.

6. Sadono Sukirno

According to Sadono Sukirno, the notion of inflation is a process of increasing the price of goods in an economic system. This statement was made in 2002. In his book, Macroeconomics.

7. Central Bureau of Statistics

According to the Central Statistics Agency, inflation can be described as a tendency to increase the price of goods and services. In general, inflation occurs continuously. If the price of goods and services in the country increases, inflation may occur.

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Types of Inflation

Before knowing why inflation can occur, let’s look at the types of inflation. Based on the above definitions of inflation, it can be said that inflation is a certain condition. In addition, inflation is also unavoidable.

This is an economic problem that every country around the world will surely go through and feel. Inflation itself is divided into several types. Can be seen based on the severity, cause and source.

1. Types of inflation by severity

When viewed from the level of severity, inflation is divided into 4 types. There is inflation of mild severity. There is also inflation of severe severity.

To find out more clearly, let’s briefly review the types of inflation that go into its severity.

a. Mild inflation

First, mild inflation. Where the first type of inflation is fairly easy to control or handle. Just as the name suggests, this inflation is still within mild limits.

Because it is still light, this form of inflation does not have a very disturbing effect or influence on the economy of a country. Mild inflation conditions usually occur when there is an increase in prices below 10% each year.

b. Moderate inflation

The second type that is included in the severity level is moderate inflation. In this type of inflation, there are already parties who feel disturbed by inflation. Examples such as employees or employees who have a fixed salary.

This is because this type of inflation based on its severity causes price increases in general. The increase ranges from 10 percent to 30 percent annually.

C. Heavy inflation

This type of inflation is inflation that causes the economy in a country to become chaotic. People will generally store goods for inventory.

In addition, people will also choose not to save in the form of money. This is because the interest earned is low. Heavy inflation occurs when an inflation occurs around 30 percent to 100 percent each year.

d. Hyperinflation

Hyperinflation is the most severe type of inflation. This condition will certainly make an economy in a country very chaotic. This happened despite the issuance of fiscal policy and monetary policy.

The chaos that ensues at this level of hyperinflation is uncontrollable. That means that inflation occurs to reach above 100 percent. In fact, it will continue to increase every year.

2. Types of inflation by cause

Apart from being based on its severity, inflation can also be divided into the causes that give rise to it. There are at least 3 types of inflation that exist, when viewed based on the causes. Are as follows:

a. Demand pull inflation

This type of inflation arises because of a fairly high demand for goods and services. Even though the demand for these goods and services is very high, producers must still be able to meet all these demands. Based on this, it is called demand pull inflation.

b. Cost push inflation

The second type of inflation based on why inflation occurs is cost push inflation. This second type is inflation that arises or arises because it is an increase in the cost of producing goods.

The increased production costs will cause the supply price of goods to increase as well. That’s why it’s called cost push inflation.

c. Bottle neck inflation

Bottle neck inflation is a condition that arises because there are factors of supply and demand. In simple terms, this is a mixture of cost push inflation and demand pull inflation. Then it becomes bottle neck inflation.

3. Types of inflation by source

The third type of inflation is inflation seen by its source. Inflation is divided into two types. Here’s the explanation:

a. Domestic inflation

Inflation is a condition or condition that originates from within the country. Inflation occurs when the circulation of money in the community is more than what the community itself needs with its money.

b. Imported inflation

The second type of inflation based on its source is imported inflation. This second type, the source comes from abroad. Where an inflation occurs, because there is a country that trades freely. Then the increase in prices abroad occurred.

Why Does Inflation Occur?

Why does inflation happen? Inflation occurs for several reasons. The following are some of the causes or reasons why inflation can occur.

1. Withdraw request

In general, this inflation is caused because the demand and supply of goods or services is very large. It happened in the country for a fairly long term. And generally needed by the community.

This inflation is very common in a country. Especially countries with fast economic growth. High job opportunities will cause the income level of the community to be high as well.

2. There is a cost push

The second reason why inflation can occur is due to an increase in production costs. It happened within a certain period of time. And it happens continuously.

In general, inflation due to the increase in production costs is caused by the pressure of rising production costs. This inflation can occur in countries whose economies are growing and developing.

It can also happen in countries that are growing rapidly. However, the unemployment rate is quite low. In a country like this, the supply of labor will be limited. However, the demand for manufactured goods will be higher.

3. The money supply increases

This theory was put forward by the classics. They say that there is a relationship between the money supply and the prices of goods.

If the quantity of goods remains constant but there is more money in circulation, the price will be high. If this happens continuously, then it is called inflation.

4. Increase in supply and demand

The reason why inflation can occur is due to an increase in supply and demand. This happens because there is an imbalance between supply and demand.

When the demand for a good or service increases, it will result in a decrease in the supply of production factors and goods.

Meanwhile, substitutes or substitutes for these goods and services are limited or even non-existent. This imbalance will cause the prices of goods and services to rise.

5. Consequences of people’s behavior

This is known as expected inflation. This inflation occurs as a result of people’s behavior. People who think that economic conditions in the future will be even better.

This type of inflation is difficult to detect. This is because inflation is not very significant.

6. Rigid economic structure

A producer cannot prevent quickly the increase in demand caused by population growth. In the end, demand is difficult to meet when there is population growth.

7. Economic and political chaos

If a country is in an unsafe condition, the price of goods in that country will tend to be expensive. This has also happened in Indonesia.

Precisely when there is political and economic chaos. This happened in 1998 ago. At that time, the inflation rate in Indonesia even touched 70 percent.

Even though the level of inflation tends to be normal. Ranges from 3 percent to 4 percent.

8. Company decisions

This is one of the reasons why inflation can occur. Sometimes, inflation can occur naturally. When supply decreases. And the demand is increasing.

However, at other times inflation occurs because it is regulated by the company. Companies that make popular goods often increase their prices. This is done only because consumers are willing to pay the desired price.

The company will also raise prices freely. Especially when the goods being sold are something that consumers really need. For example, the daily needs of gas and oil.

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9. National debt

When a country’s debt increases, the government generally has two options. First, the government can raise taxes. Second, the government prints more money to pay off the country’s debt.

When taxes increase, businesses will react. They will increase the price. This was done to compensate for the increase in tax rates at the company.

If the government chooses the second option, it will have an impact on the circulation of money in society. This will lead to price increases and currency devaluation.

10. Overseas

Inflation does not only come from internal factors. However, inflation can also come from external factors. External factors in question are factors from abroad.

For example, there is an increase in the price of crude oil. The increase in other imported commodities also had an effect. Such as food and beverage ingredients. Moreover, the increase occurred continuously.

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