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Causes, Impacts, Types & Examples [LENGKAP]

Definition of Inflation

Simply put, inflation is defined as a general increase in prices and continues over a period of time. Inflation must take place in a long time (continuously) and not be temporary and the price increase occurs widely not just one or two items.

Generally, inflation occurs when the amount of money circulating in the community exceeds what is needed. The effect of inflation is a continuous (continuous) decline in the value of a currency.

Inflation, inflation is a process of increasing prices of goods and services in general and continually related to the market mechanism caused by inflation. by several factors such as excessive market liquidity which triggered consumption or even speculation, increased public consumption, and an imbalance in the flow of money and goods,

What about inflation based on the views of some experts? Following below are some notions of inflation according to experts.

1. Winardi

According to Winardi, inflation is a period in a certain period in which there is a decrease in the purchasing power of monetary units. Inflation can occur if the value of money deposited is more outstanding than the amount of goods or services offered.

2. Boediono

According to Boediono, inflation is a tendency for prices to rise in general and continuously. Circumstances in which the price of one or several items rises, it cannot be said as inflation. However, if the price of the rising item extends and causes the increase in most of the other items that is called inflation.

3. Sadono Sukirno

Sadono Sukirno stated in 2002 in his book entitled Macroeconomics on page 15, inflation is a process of rising prices that occur in an economy.

4. Bank Indonesia (BI)

According to Bank Indonesia (BI), inflation is the tendency of prices to increase in general and continuously (continuous).

5. Dwi Eko Waluyo

Dwi Eko Waluyo stated in his book entitled Theory of Macroeconomics published in 2002, inflation is one form of economic diseases that often arise and are experienced in almost all countries . The tendency of rising prices in general and to occur continuously (continuous).

6. Central Bureau of Statistics (BPS)

According to the Central Bureau of Statistics (BPS), inflation is the tendency of rising prices of goods and services in general, which continues continuously (continuous).

Causes of inflation

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Inflation can occur due to several factors. In general, the cause of inflation is due to an increase in demand and production costs. The following below are some of the causes of inflation.

1. Increasing Demand (1945-1927) Demand Pull Inflation )

Inflation can occur due to an increase in demand for certain types of goods / services that occur in aggregate ( aggregate demand ). This can occur because of several factors, namely:

  • Increased government spending
  • Increased demand for goods for the private sector
  • Increased demand for exported goods

2. Increased Production Costs / Cost Inflation Inflation (Cost Pull Inflation)

Inflation can occur due to an increase in production costs. The cause of the increase in production costs is the increase in prices of raw materials such as rising fuel prices and rising labor costs.

3. High Money Circulation

Inflation occurs because the money circulating in the community exceeds what is needed. So, when the number of goods is fixed while the money circulating in the community has doubled, the increase in the price of goods can reach 100%.

This can happen if the government implements a budget deficit system. Where to overcome this budget shortfall, the government chose to print new money. As a result, the amount of money circulating in the community is increasing and causing inflation.

Impact of Inflation

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After you understand what inflation is, then you need to know that rising inflation can have an impact negative both to the community and the country. The following below are some of the negative effects of inflation in general.

1. Impact of Inflation on the Value of Money

The value of money can decrease if there is an increase in prices on various goods needed by the community. Community goods are more expensive than before. This will certainly be very burdensome to the community, especially those whose income is fixed but the expenditure is higher.

In addition, this also has a negative impact on lenders because the value of the money they receive is smaller than when lent (before inflation). [19659037] 2. Impact of Inflation on Revenue

 Impact of Inflation on Revenue

Inflation can have a negative impact on people with fixed income but more expenditure than before inflation occurs. As a result of rising prices for goods needed. In general, inflation can cause the pattern of income distribution in a country to be uneven or one-sided.

On the other hand, inflation can actually benefit entrepreneurs whose income is higher than the increase in production costs (inflation rate). So, when the price of goods rises (when inflation) it will encourage producers to increase the amount of goods. Well, this increase in the number of goods will increase the income of the producer.

Especially if the goods sold are basic necessities, they will certainly be bought by many people even though the price increases. However, their numbers are very small compared to those who are harmed by inflation.

3. Impact of Inflation on Savings Interests

Inflation can make most people lose interest in saving. Why is that? This is because the income from the savings interest is much smaller while the saver must pay the savings administration fee.

4. Impact of Inflation on Exports

Inflation can also reduce export activities within a country because the cost of exports during times of inflation will be more expensive. Then, the competitiveness (competition) of export goods also decreased so that income from foreign exchange was reduced.

5. Impact of Inflation on the State of the Economy

High inflation rates could have a negative impact on the stability of the country's economy. Inflation can cause the price of goods to continue to rise, making producers hoard production factors or goods needed so the price of goods will be even higher.

Consumers will also make large-scale purchases before prices rise so demand will increase. The result of this condition is social jealousy, riots or even financial crises such as those that occurred in 1998.

6. Impact of Inflation on Cost of Goods Calculation

 Inflation impact on money

Inflation can cause the calculation of the price of basic goods to be more difficult because it can be too small or too large.

in the future it is often not accurately predicted, the process of determining the cost price and selling price also becomes inaccurate. In certain circumstances, inflation can make producers difficult and disrupt the stability of the economy. .

Types of Inflation

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You need to know that inflation can be divided into 3 types, namely based on the severity, causes, and also the source. Here's the explanation.

1. Types of inflation based on severity

Following below are the types of inflation based on their severity.

  • Light Inflation is inflation that is easy to control and also not so bad for the economy of a country. This inflation occurs when the increase in prices of goods / services in general, which is below 10% per year.
  • Moderate inflation is inflation which can reduce the level of prosperity of the fixed income community, but has not endangered economic activity country. This inflation occurs when the increase in the price of goods / services in general is in the range of 10% – 30% per year.
  • Heavy Inflation is inflation which can cause economic chaos in a country. This inflation generally makes people prefer to store goods and do not want to save because the interest is far lower than the inflation value. This inflation occurs when the increase in the price of goods / services in general is in the range of 30% – 100% per year.
  • [1945VeryHeavyInflation (Hyperinflation) is inflation which has caused economic chaos in a country and it is also very difficult to control even though monetary and fiscal policies have been carried out. This inflation occurs when the increase in the price of goods / services in general is in the range of 100% and above per year.

2. Types of Inflation Based on the Cause

Following below are the types of inflation based on their causes

  • Demand pull inflation is inflation that occurs due to higher demand for goods / services than can be fulfilled / provided by the manufacturer.
  • Cost push inflation is inflation that occurs because of an increase in production costs so that the price of goods offers increases.
  • Bottle neck inflation [19659070] Is mixed inflation caused by supply or factor demand.

3. Types of Inflation Based on the Source

Following below are the types of inflation based on the source.

  • Domestic inflation is domestic-sourced inflation. This inflation can occur because the amount of money circulating in the community exceeds what is needed. In addition, this inflation can also occur when the number of certain goods / services decreases while demand remains so that the prices of goods / services rise.
  • [1945Importedinflation is inflation originating from abroad. This inflation can occur in countries that conduct free trade where there is an increase in the price of goods abroad.

Example of inflation

The following are some examples of inflation.

  • Foreign exchange rates rise, causing world oil prices too rose and eventually made almost all commodity prices rise. Foreign currencies – Examples of Inflation ” width=”600″ height=”303″/>
  • Production costs became higher so the prices of goods also rose. As a result, people's purchasing power is declining.
  • The cost of production factors increases because of the depreciation or decline in the exchange rate of the domestic currency against foreign currencies. As a result, raw materials and goods from abroad become more expensive.

Well, hopefully the discussion on understanding of inflation along with its causes, impacts, and types of inflation along with its example as explained above is useful. Thank you!

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