Inflation is the tendency of general prices to rise in general and continuously or can be said of a phenomenon continued rising prices of goods and a variety of public input, constantly in mind that tertentu.Perlu period of rising prices from one or two items not called inflation.
The cause of inflation, can be divided into:
- Demand Side Inflation, which is caused by the increase in aggregate demand exceeds aggregate supply increase
- Supply Side Inflation, which is caused by the increase in aggregate supply exceeds aggregate demand
- Supply Demand Inflation, inflation yaiti caused by a combination of an increase in aggregate demand which was followed by an increase in aggregate supply, so prices rise higher
- Inflation or Inflation Supressed cover-up, namely inflation at a time will come and show himself as the official prices increasingly irrelevant in the fact
1. Based on the severity of Inflation
- Inflation Lightweight (Under 10% a year)
- Inflation Medium (between 10-30% a year)
- Inflation Weight (between 50-100% a year)
- Hyper inflation (over 100% a year)
- Demand Inflation, as public demand for different goods is too strong
- Cost Inflation, due to an increase in production costs
- Domestic Inflation, inflation has come from domestic
- Imported Inflation, inflation has come from abroad
If inflation is mild, it has a positive influence in terms of stimulating the economy could be better, ie increasing the national income and get people excited to work, save and make investments.
People who rely on income based benefits, such as businessmen, not impaired by the existence of inflation. So it is with employees who work in companies with salaries following the inflation rate.
For people who borrow money to the bank (debtor), inflation beneficial, because at the time of debt payments to creditors, the value of money is lower than at the time of borrowing. Instead, creditors or parties who lend money will incur a loss because the value of money returns lower than at the time of borrowing.
For producers, inflation can be beneficial if the income is higher than the increase of production costs. When this happens, producers will be forced to double its production (usually happens in big business).
Negative Impact of Inflation
In the event of uncontrolled inflation (hyperinflation), the situation became chaotic and the economy experienced sluggish economy. People are not excited about working, saving, or hold investments and production due to rapidly rising prices. The fixed income earners such as civil servants or private employees and workers will be overwhelmed and the balance to bear, so the price of their lives became increasingly fell and fell from time to time.
For people who have fixed income, inflation is very harmful. We take the example of a retired civil servant in 1990. In 1990, pension sufficient to meet the needs of life, but in the year 2003, or thirteen years later, the purchasing power of money may be only a half. This means that pension is no longer sufficient to meet the needs of life.
Inflation also causes people reluctant to save because of the currency goes down. Indeed, savings earn interest, but if the inflation rate on the interest, the value of money is still declining. When people are reluctant to saving, investment and would be difficult to develop. Because, to grow the business needs of the bank funds obtained from public savings.