There are many doubts about why prices rise, in this article, we will explain what inflation is and everything that has to do with it, so that, in this way, we can understand the price policy of products, consumer goods and services. There is constant talk of inflation, the cost of living, rising prices, that is, we give different connotations to inflation, so for a better understanding of the subject, we will see some edges that will lead us to a better understanding of the subject, for example, what are the causes that originate it, types, etc.

There are a series of statistical data that quantify some economic aspects of a country, we call these economic indicators. If we analyze these economic indicators, we will be able to have a global vision of the economic situation of a nation, and somehow, it will be possible to predict what is to come, in economic terms. With these elements, the government will have clarity when taking measures or corrections in its economic policy. In this way, we arrive at inflation, which is also an economic indicator.

What is inflation?

Inflation is the rise in the prices of products, goods and services, generally in a country, and is measured over a period of one year, it could also be said that inflation is the loss of the value of money held by the people, or the loss of “purchasing power” suffered by citizens, due to the general rise in prices.

It should be noted that there is talk of a general rise in prices, not of some products or goods by sector, this means that the increase must be “global and general” for inflation to occur. As an example, inflation of 15%, means that now products cost 15% more, that is, if you could cover the basic basket with $ 1,000 before, now you need $ 1,150 to buy the same products.

What causes the inflation effect?

It seems to have a cause in the increase in prices that entrepreneurs and producers carry out for their products and services. But what really happens is that the prices of goods and services rise or fall, depending on the supply and demand in the market.

Inflation confirms the rise in prices

There are several explanations for this phenomenon, one of which is, if money is put into circulation without “real economic growth” taking place, the prices of goods and services in that economy will tend to rise. Let’s look at an example for clarity, in an economy of 100 currency units in circulation, all goods will tend to have a monetary value of 100.

If the central bank issues 10 more monetary units without real economic growth in the production of those goods, then the prices of those goods will tend to rise to 110 in order to maintain the “relative value” of those goods and services… Since the currency that circulates is fiat money (without any endorsement in goods or gold for example), the central bank can have an increase in the circulating money, that is to say, creation or printing of additional money.

Who does inflation depend on annually?

In general, when money in circulation increases (which is done by the central bank), its origin is for political reasons, and it does so to “buy debt” issued by the government to finance its public spending programs. money in circulation, in order to buy public debt, the monetary base increases, and this causes inflation to increase also in the prices of goods in that economy.

Therefore, in some cases, the inflationary process tends to be rapid and extend to all goods and services in the economy. Therefore, as long as the currency’s support remains fiduciary, (speculative), inflation will continue to increase year after year, causing the creation of the so-called “financial bubbles”, which inevitably end up periodically exploding.

What do you think about this topic? Did you know why the prices of products and services really rise?

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