Definition of Inflation has been different in different dictionaries over the ages. Dictionaries have given different versions of definition regarding inflation. Inflation is an economic condition wherein the price of the goods and services increase steadily measured against standard level of purchasing power, whereas the supply of the goods and services decline along with the devaluation of money.
When the economy of a country faces inflation it brings bad news for the people because the supply of goods decreases and this scarcity causes a predicament for the people. The definition of inflation has undergone lot of changes since 1983 when it appeared in the dictionary for the first time. At that time inflation was thought of as a cause but as time passed by the definition and its significance changed. Economists from different schools differ in their opinion regarding the genesis of inflation. However, it is agreed that inflation occurs due to an unexpected rise in the supply of money which causes devaluation or a decrease in the supply of goods and services.
Again, the inflation rate decreases with the increase in the production of goods and with the decrease in the supply of money in the market.
The purview of inflation has narrowed in the present day since only the phenomenon of increase in the price level is termed as inflation these days. Previously, the devaluation of money was also considered to be a condition of inflation. In the present day this phenomenon is known as a monetary inflation.
The inflation in price is measured against the purchasing power of the consumers and is done by the Bureau of Labor Statistics in United States of America.
Factors Leading to Inflation
There are several factors which lead to inflationary circumstances in an economy. These factors enable the demand to increase without maintaining any balance with the supply. The factors are:
- Increase in the supply of money
- Price Controls
- Expenditure of monetary reserves
Inflation affects the whole of the economy squarely including the taxes and import tariffs. They decrease the efficiency of the economy that produces goods and services.