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Types of Inflation, Causes and how Inflation is Measured - Essay Example

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Name: Course: Tutor: Date: Inflation Introduction Inflation is a scenario whereby the trend of goods and services in an economy rises rapidly. Such a situation occurs when there is excessive money in circulation. This essay will focus on the various types of inflation, their causes, and their measurements…
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Types of Inflation, Causes and how Inflation is Measured
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Download file to see previous pages It is important to note that, the higher demand will in turn pull up prices of commodities thus resulting to too much money circulating in an economy. This can be attributed in times of war, or rather political crisis in a country's economy. Pricing Power Inflation This also referred to as profit-push inflation. This is a type of inflation, which result from a situation whereby, individuals in business intentionally and administratively decide to increase the prices of commodities and services. This intentional move aims at increasing the profit margins. The makers exercise their market influence by increasing the prices of product and services to suit their expectations. It occurs in monopolies and oligopolies market. They do this due to their concentration in the market. Cost- Push Inflation This occurs when the price of goods or service increase due to the rising cost of its production or when the maintenance cost rises. It is apparent that the resultant excess demand created by the rising cost of production causes prices to increase. An example is whereby price of an agricultural product such as maize rises due to an increase in the cost of fertilizer production. Wage-push inflation This normally occurs when wages or labor costs rises due the influence from the labor union’s demand for the increase in wages. In addition, as it happens, the productivity remains constant. The resultant cost and effect will drift to the consumers. The increase in the cost of labor will cause the business to cut down the number of laborers hence consequently resulting to the low productivity. On the other hand, the fall in productivity level, which is low supply, will cause prices to rise due to the constant consistency of the demand. This inflation causes unemployment since higher price level means that, no more laborers are needed. In this scenario, most institutions lay off some of the employees. Unless demand for the wage stops, there will be continuous, high price level coupled with higher unemployment and low output. Sectoral Inflation This kind of inflation occurs on the relationship between related or unrelated product and or services. This occurs when change in the price of a product influences the price of another. For example, a stationery user, a case, or a situation whereby the price of timber price rises, the stationery dealer will in turn increase the price of stationery items such as books to suit their profit margin thus causing a general increase in prices occurring in every unit of product or service. Supply shock inflation This arises under unpredictable circumstances in an economy, for example, when there is unpredictable drought occurrence, the price of the agricultural products will rise rapidly and especially when there is no enough stock to curb and fix the situation. Hyper inflation It is a form of inflation that occurs when country involved is in economic backdrop thus in dire need of monetary valuables and funding. It is where prices rise at a higher rate, and when the rate of inflation exceeds four digits. Creeping inflation It occurs where price level rises normally between 1 and 7%. Imported inflation It deals with international trade. The prices of imported goods normally have an effect in domestic prices. Causes of inflation It is worth noting that inflation occurs under various circumstances for instance when there are changes in the price of foreign goods. This will have an impact on the overall payment made to the outsiders. ...Download file to see next pages Read More
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