Inflation is the rate at which the general level of prices for goods and services rises. It is an increase in the general level of prices usually as a result of an imbalance between supply and demand.
Printing money can be one of the reasons for inflation, but it’s not the only cause. The causes of inflation (สาเหตุ เงินเฟ้อ, which is the term in Thai) is resulting widely due to changing lifestyles and technological advances. Let’s look more closely at what inflation is and how printing money affects inflation.
What Exactly Is Inflation And What Are Its Causes?
Inflation is the increase in the price of goods and services over a period of time.
The factors contributing to the causes of inflation are: –
Increased Production Costs
If the nominal expense prices are higher, the product to be built is likely to be more costly. This type of situation is also known as cost-pull inflation. When prices rise as production costs rise, it is known as cost-pull inflation. Cost-push inflation occurs when there are higher costs for production or distribution that are passed on to the consumer.
A Rise In Demand For Goods And Services.
More demand implies more supply. The quantity of items available is insufficient to meet the demand. Demand-pull inflation is another term for this phenomenon. Demand-pull inflation occurs when aggregate demand increases relative to aggregate supply, causing a rise in market prices.
To reduce the causes of inflation, a balance between production and consumption is to be maintained. When the consumption increases way more than the production the prices rise.
For Example: – Flight tickets increase during the holiday season.
An Increase In The Money Supply Affects Inflation.
If there is more money in the market more the supply is likely to happen.
For Example: – Most people are eager to spend more money if they have more cash on hand. Consider a smartphone for an example. The majority of people prefer to get the latest smartphone if there is a buzz about it. People can only buy when they have cash on hand. People will buy it if they have that amount of money on hand.
If people begin to purchase that phone, demand will continue to rise. In a rising demand environment, prices will not remain stable. Consequently, that smartphones will become more expensive.
When there is too much money in circulation, the value of each unit reduces, and is one of the causes of inflation.