Inflation is a phenomenon which strikes an economy when the supply of money increases without any increase in the supply of goods and services. The supply of goods and services do not increase at an equal level as the supply of money. High Inflation is a condition in which the prices of goods and services reach an all time high. The prices of goods and services increase rapidly under such a circumstance, faster than the remuneration of people. Before one can receive his/her paycheck the prices are skyrocketing. The price level during the high inflation period shoots up very high. But the increase in prices does not assure the increase in the production of goods and services. Instead the demand of goods increase and the supply decrease. The supply of money also increases. This is measured against the standard price index.
High inflation in an economy can harm the economy by affecting it in a negative way. It casts long-tem effects. High inflation reduces the incentive within the mass to save money hence it reduces the potential for long-term capital formation. The accumulation of money is perturbed by this phenomenon as the value of money hits rock bottom and people lose the spirit of saving. The consumers cannot buy the goods since the price level shots up beyond their reach. However, the high inflation also grants a positive effect to the economy by reducing the spending capability of the mass in the long-term by making goods less affordable. In this way they might be able to save some amount of money in the long run.
High inflation is not good for an economy since it dismantles the steadiness of the economy. The rising of the prices take place at an uneven rate and that makes it even more harmful. In the present times none of the economy is free from inflation but reducing the rate of inflation is probably the greatest challenge for the countries.
For global governance watchers, this was the big week of the year. Between 7 November and 16 November, the world witnessed an APEC meeting in Yanqi Lake near Beijing complete with a bilateral China–Japan ‘breakthrough’ and a major US–China climate deal; an historic ASEAN and East Asia Summit held in Naypidaw, Myanmar; and a colourful G20 meeting in Brisbane, Australia.
Notwithstanding the chorus of those announcing growing disorder, global order seems better off after these summits.
Mario I. Blejer is a former governor of the Central Bank of Argentina and former Director of the Center for Central Banking Studies at the Bank of England. Eduardo Levy Yeyati is Professor of Economics at Universidad Torcuato Di Tella and Senior Fellow at The Brookings Institution.
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James W. Harpel Professor of Capital Formation and Growth at the John F. Kennedy School of Government in Harvard University. Director of Program in International Finance and Macroeconomics at the National Bureau of Economic Research.