Inflation is a rise in the prices of various things in an economy. The opposite of inflation is deflation where the prices of various commodities in a country decrease. The decreased prices increase the purchasing power of the country and the people living in the country. Increasing prices on the other hand decreases the chance of the people to purchase more. Many people who have heard about inflation, but have never understood anything about inflation, would like to know what causes inflation. This is because if they know what causes inflation, they will be able to take adequate steps to counter the inflation.
There are various causes of inflation. This article lists a few of the most important causes of inflation. The first cause of inflation is when the country prints a lot of currency. Excess printing of currency by the country increases the amount of money in circulation in the country. This causes the people to have more money on their hands and the purchasing power increases. The various prices also increase accordingly and this causes inflation.
A decrease or increase in the exchange rate suddenly can also cause inflation. This is because there is a sudden change in the import export revenues that causes a mismatch leading to an increase in the prices of various commodities.
A country where the labor work force demands more wages can cause the inflation to occur. This is because when the work men ask for more wages, the companies where these people are employed have to make the customers pay for the increased expenditure that the company has incurred. This increases the prices of various commodities and this in turn can cause the inflation to occur.
A change in the economy of the country can also cause the inflation to occur. This is because when there are taxes being increased by the government in a country, the tax burden is again passed on to the consumer who has to pay more money to the government either directly or indirectly. This again causes the inflation. The bank rates of lending and borrowing both at the national level and the international level can cause inflation. This is because the variation in the rates can cause the people to increase or decrease their spending and thus cause inflation.
The oil price in the international market can also have an effect on the inflation because all the countries are driven on oil and the price rise causes inflation. These are the various causes of inflation.