What is Inflation? When the value of currency decrees against the regular price of the daily used products then it called Inflation.
Inflation is a complex economical problem. There is the various reason for inflation. The major reasons are described below-
- Increased supply of money: The major reason for inflation has increased the supply of money. Besides, The purchasing power and the demand for the products are increased if the supply of money is increased. But, the price of the products is increased while the supply of the products is not increased. As a result, the people of the society faces inflation.
- Excess government expenditure: Excess government expenditure is one of the major reasons for inflation. Every country’s government expenses a huge amount of money in the name of development in this modern time. However, The ratio of government expense and short term production is not the same. Thus, we face inflation.
- Expand bank loan: The excess loan is provided by commercial banks can make inflation. Sometimes, some commercial bank provides excess loan on easy terms. As a result, the supply of money in society is increased due to provide excess loans by banks. Thus, we face inflation.
- Reduce production: The shortages of agricultural and industrial goods can make inflation. Besides, there is various reason when the production is hampered. If the production reduces, it Simply increased the price of the products while the supply of money is unchanged.
- Expense shortage: The expense shortage can create inflation. The government of underdeveloped countries can expense more than their earning for economic development. Besides, the government makes extra money to meet this shortage. However, the production is not increased as the money supply increased. Thus, we face inflation.
- Increased expense in the unproductive sector: The other reason for inflation is increased expense in the unproductive sector. Sometimes, the government can expense more in unproductive sectors. Besides, The purchased power of buyers is increased by expending on the park, stadium, etc but the production is not increased along with. We face inflation.
- The increased expense of investment and usage: We will face inflation if the expense of investment and usage is increased. If usage and investment are increased in a society then the price of goods is also increased. Because the total demand of a country is increased along with investment and usage rate. But, the production is not increased in the same manner within a short period. As a result, we face inflation in our economy.
- Surpluses of international trade: Sometimes, the surpluses of international trade create inflation the society. Surpluses of international transactions in a country increased the earning and purchased power of the people. In that time inflation occurred.
- Natural calamities: Sometimes, the production of the agriculture and industrial sector is highly damaged due to excessive rain, cyclone, tsunami, earthquake, etc. For this reason, the production and supply of the product are reduced. We face inflation if the supply of the money is unchanged and the supply of the products is reduced at a time.
- Increased wages: Sometimes, the increased wages of labor create inflation in society. Because the production cost is increased if the wages of labor is increased. Then the price of the product is increased by the producers and we face inflation.
- Black market and dishonesty in business: Another reason for inflation is making an artificial shortage of goods by some dishonest producers. Besides, They create a shortage in the local market by sending goods in foreign countries for earning more. Moreover, the create an artificial shortage in the market by doing unlawfully. As a result, the price of the goods is increased and we face inflation.
- War-related expense: Another major reason for inflation is the war-related expenses. The government needs to expense more when the country faces war. In this time, taking a loan is not possible for the government to operate war. So, the government print money in the country to operate the cost of the war. As a result, the price of the goods is increased and we face inflation.
So, we learn some major causes of inflation in a country.