Causes of Inflation

An increase in the price of consumer goods and services over a period of time in an economy is known as inflation. Inflation leads to a decrease in the purchasing power of a commodity of a nation as it is a rise in the prices of commodities. Though inflation is a natural part of every economy however when it goes beyond the limits or a certain level, then it become a serious issue not only for the citizens but also for the economic planner.

There are both some internal and external issues that cause inflation. Some of the main Causes of Inflation are discussed below.

Causes of Inflation

Excessive Money
Excessive money supply is one of the causes of inflation. When demand is equals to supply, everything is going according to plan. However, when the demand exceeds the supply, inflation arises. It’s obvious that when one has more money, the desire to spend more also increases. Moreover, this issue often becomes the cause of inflation and a challenge for both the people and the economy. Excessive money supply is one of the main causes of inflation.

Increase in Cost of production
An increase in the cost of production is also one of the causes of inflation. When the cost of production increases, the business man tends to increase the rise the price of the product to cope up the rise. Every business firm and company is established with a desire to earn profits. When the cost of production rises, the prices of products raises which ultimately puts the entire burden on the consumers. This is also one of the severe and Main Causes of Inflation.

Anticipatory Inflation
Anticipatory inflation is also one of The Causes of Inflation. When the workers prognosticate that the there world be inflation in the coming days, they demand rise in wages from their employer and often menace the employer that if the wages would not rise they would call for a strike. This is also one of the causes of inflation.

National Debt
Increase in the national debt is also one of the major causes of inflation. When a country is facing a deficit i.e. its expenditure exceeds its income it has to borrow money from different countries and monetary institutions to finance its budget. They lend money on their own conditions and it has to be paid back. Therefore, In order to keep pace with the increasing loan tenure and the high interest, the country often increases price of consumer goods and services. National debt is also one of the main Causes of Inflation.

In general, the causes of inflation can be attributed to almost anything. But since the start of 2011, there have been many problems that have not helped. Prices of commodities have increased, crops have been damaged, and Dollar has lost its significance. As these things worsen, it will affect each and every one of us in 2011 & 2012.