What is Inflation: Definition, Causes, Examples
Description of the existing inflationary circumstances in the international economy
What is Inflation: Definition, Causes, Examples, and Effects
What is a simple definition of inflation?
The current inflationary environment we face in the
global economy is one in which prices are rising. This is due to various
factors, including an increase in the money supply, higher oil prices, and
higher demand for goods and services. This environment can lead to higher
interest rates and decreased purchasing power for consumers (L., 2022).
What are the factors of inflation?
Inflation has been on the rise in recent years, driven by various factors. These include (1) Increases in the cost of raw materials; the cost of raw materials is one of the most critical factors in determining the price of a product. By increasing the cost of raw materials, the product's price will also increase, (2) wage growth; the economy is doing well, and wage growth is strong. Wage growth has been strong recently, partly due to the healthy economy and (3) consumer demand; the consumer demand for this product is higher than we anticipated. This has led to higher prices for goods and services and has been a significant concern for policymakers (Wile, 2022).
As a result, the cost of living has
been rising with inflation, and this has been affecting American households.
Many families are struggling to keep up with the rising costs, and this is
causing financial stress. The Fed (Central Bank of the United States) should
pursue policies to address these inflationary pressures. The Fed has been
working to keep inflation in check, but it remains a concern for many
Americans. The Fed's efforts to control inflation have been somewhat
successful, but there is still room for improvement (Klein, 2019).
How does inflationary pressure impacts the economy?
The implications of inflationary
pressures can have several different effects on different people. For savers, it often means that their
money will not go as far as it used to. This is because, as prices rise, the
value of money falls. This means that each dollar will buy less than it did
before. For borrowers,
inflation can mean they will have to pay back more money than they borrowed.
This is because, as prices rise, the value of money falls. This indicates that
each dollar will be worth less when it is time to repay the loan. Moreover,
inflation can mean that investors will have to be more careful about where they
put their money. This is because, as prices rise, the value of money falls
(Amadeo, 2021).
How inflation is scaling the cost of living crisis in the US?
As the cost of living increases,
people require more money to maintain their standard of living. This is
because, as prices rise, the value of money falls. Consequently, people on a
fixed income, such as pensioners, can find it challenging to make ends meet.
The government may need to intervene to help these people by, for example,
increasing pensions in line with inflation (Amadeo, 2021).
Factors that may lead to a decrease in inflation and gas prices in the global thrift
Some factors that could lead to a
shift in the global economy and lower inflation include a decrease in demand
for goods and services, an increase in productivity, or a decrease in the cost of
inputs. Another potential factor is a change in government policy, in terms of
either spending or taxation. Moreover, a change in the money supply or a
decrease in the rate of economic growth could lead to lower inflation. Finally,
changing the global political environment could also lead to a shift in the
economy and lower inflation (OECD, 2017).
Which factors are influencing the global economy?
Furthermore, some factors are likely
to influence a shift in the global economy that may lower gas prices for the consumer market (OECD,
2017). These include:
1.
The overall health of the global
economy. If the global economy is weak, oil demand will be lower, leading to
lower prices.
2.
Geopolitical factors. If there is
instability in key oil-producing regions, this can lead to higher prices.
However, if there is increased stability, then prices may fall.
3.
The price of alternative energy
sources. If alternative energy sources become cheaper, then this may lead to a
reduction in demand for oil and thus lower prices.
References
Amadeo, K. (2021, December
31). Inflation's effect on the economy and you. The Balance. https://www.thebalance.com/inflation-impact-on-economy-3306102
Klein, M. W. (2019,
September 6). Why the Federal Reserve must remain above political influence.
PBS. https://www.pbs.org
L., H. C. W. (2022). Global
Business Today. McGraw Hill LLC.
OECD. (2017). Inflation
forecast. Prices. Global Business Today
Wile, R. (2022, April 19). The three forces driving inflation higher and what it will take to cool them off. NBCNews.com. https://www.nbcnews.com/business/consumer/