İnflation Types and Causes

İnflation Types and Causes , why does it rise and how does it fall?

Especially after the Covid 19 disease period, inflation rose rapidly globally, reducing people’s purchasing power. Inflation, which means the decrease in the value of the money used in the world in basic terms, is a matter that affects the economy of countries in general. How inflation rises and falls, which will cause you to say that you cannot find it cheap tomorrow. Let’s closely evaluate the curious questions such as what is inflation and why it rises. What is Inflation, Why It Rises and How It Falls….

What are the Types and Causes of Inflation…

Country economies stand on extremely delicate balances. For example, while the negative effects of covid 19 disease are almost over all over the world, interestingly, we see that global inflation has increased at different rates in our country and in the world. In the purest terms, inflation means that the value of your money and the purchasing power of people move downwards.

Of course, the actions taken by the governments governing the countries affect the economy and inflation, but central banks are the leading institutions that should control this situation globally all over the world. Even if the citizen does his best, the improvement of the economic weather is done by the state. Let’s examine the answers to curious questions such as what is inflation and why it rises in more detail.

Yes Let’s Start, What Does İnflation Mean?

In the purest terms, inflation means that the value of your money and the purchasing power of people decreases downwards. This decline, which occurs slowly over time, is revealed by examining the prices of a group of certain goods and services that determine the basic needs of the people.  An increase in the inflation rate percentage means that the currency has a much lower purchasing power than in the previous period.

Inflation does not cause price increases in only a few products. People have some basic needs to continue their minimum daily life. Along with these basic needs, there are also different products that affect the service sector. According to the result of an evaluation made on the prices of all these, if the prices are much higher than the previous period and the purchasing power of the people has decreased, this is called inflation.

Among the products and services listed in the inflation catalogue and whose prices are evaluated, there are many different needs such as grain, metal, fuel, electricity, transport, health, entertainment. As the value of money falls, it becomes more difficult for people to access these goods and services.

As a result, the economic growth of countries and even other countries with which they have economic unions suffers. In other words, inflation is not only the decrease in the purchasing power of money, but also the downfall of the economic growth of that country. In addition, there are 3 types of inflation models. These are ..What are the Types and Causes of Inflation

• Demand pull inflation
• Cost push inflation
• Inbuilt inflation

What Does Demand Pull İnflation Mean?

Demand pull inflation, also known as the demand pull effect, occurs when the increase in the supply of money and credit in the market pushes the national economy higher than normal. Each producer has a certain production capacity and the public has a certain purchase demand. If there is a surplus of money and production grows faster than the economic quantity, price increases occur.

In other words, it is interesting to note that a lot of money in the economic market, like a little money, will cause inflation. People who earn a lot of money spend more. When the demand for shopping increases, prices also increase. Since the supply-demand balance does not occur, a shortage occurs. Since the economy does not accept such problems, price increases are experienced.

What Is Cost Push İnflation?

Cost push inflation can be defined as the imbalance between the basic materials of the production process and the earnings at the end of production. The economy is adversely affected if, together with the increase in the supply of money and credit, all this is directed towards a single service or product. Economic declines occur due to the inconsistency of supply and demand on the product in question.

For example, everyone has a lot of money, everyone wants to buy the same product, but there is not enough production of goods. Thus, the price, that is, the cost increases. The producer, who costs the goods expensively, has to sell the product expensively, but the consumer cannot buy it. The best example of cost inflation is oil prices. Even if you do not buy oil directly, as oil prices increase, the price of all products you will buy that are remotely related to the cost of oil increases.

What Is Internal İnflation?

It would be appropriate to use a kind of vicious circle definition for internal inflation, also known as built-in inflation. During periods of high inflation, people think that this economic situation will always continue in this way, and for this reason, producers constantly increase their products and employees demand higher wage increases.

At the time, this may seem like a measure against inflation, a necessary increase to maintain the standard of living, but it will cause inflation to continue and even increase. If everyone has more money, the price of goods and services increases. This situation, known as the wage-price spiral, constantly triggers each other. This situation, where the reverse is also valid, creates a vicious circle.

So Why Does İt Rise

• The state prints and distributes more money to pay its debts
• Legal devaluation of the tender currency
• Lending money from banks’ reserves by purchasing government bonds

These are the three most common causes of inflation. Since it is a bit complicated, let us summarise, the main cause of inflation is the increase in money printing. In other words, the more money you print in the market, the lower the purchasing power of that money, and therefore the lower your purchasing power, and this causes inflation. It is the money barons of that state who increase the money supply.

  İnflation Types and Causes and So How Is Inflatıon Calculated?

Inflation is found as a percentage as a result of the calculation of price index variables by creating a group of selected goods and services in that period. Monthly, annual or different periodic inflation calculations can be made. When calculating inflation, index types such as consumer price index (tufe), wholesale prices index (tefe) producer price index are also taken as basis. Their evaluation is carried out by TURKSTAT in our country. The formula for calculating inflation is as follows;

Percentage Inflation Rate = ( Final Consumer Price Index Value / Initial Consumer Price Index Value ) x 100

This is the basic related formula for calculating inflation. You can also find many inflation calculation tools on the Internet. Of course, this is done on the basis of values that are considered correct at the time.

They regard inflation as a bad economic situation.

Are There Advantages And Dısadvantages Of Inflatıon?

Even its name can bring the thought of negativity to mind. However, there are some exceptions to this situation. For example, if you have a property or stock goods priced in your own currency, you can sell with a much higher profit rate thanks to inflation. Because your property will increase in price. People and companies that speculate on company shares in order to make high profits also benefit from inflation.

Of course, when we put our hands on our conscience and think about it, we should say that inflation is only a disadvantage. Who wants the purchasing power of money to decrease? Neither the consumer nor the producer is satisfied if product A, which was bought for 2 units of money a month ago, is 20 units of money at the end of this month. Because even if the salary of the consumer and the income of the producer seem to increase, there is always a loss situation because the expenditures increase at the same or even higher rate.

We answered the curious questions such as what is inflation, which is an economic situation that deeply affects our country and the world, why it rises, what are its types, and we talked about the details you need to know about the subject.

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