Features of Inflation

If we put bowl of milk on gas and keep warming it on low flame then it is all right but if we warm it on high flame and don’t pay attention then milk will boil and come out of the bowl in the same way in case of inflation if price rise is moderate then it is good for economy however if price rise is more than normal and government pays no attention towards taming inflation then it can be a disaster for the economy. In order to understand about it clearly, let’s look at some of the important features of inflation –

  1. The first and foremost feature of inflation is that price rise has to be a continues one and not one time so if the price rises in any particular month and then it declines in next month then it cannot be termed as inflation whereas if the price rise is continuous for many months then it is inflation.
  2. Inflation happens because of excess demand in comparison to the limited supply of goods and since demand is high it results in a rise in the price of goods which in turn results in inflation. So for example if there are 500 boxes of apple and as long as demand for apple is less than 500 boxes prices of apple will be in check but the moment demand for apple rises more than 500 boxes price will start rising so in simple words the primary reason for inflation is demand of goods exceeding the supply of goods.
  3. Inflation is of two types one is demand pull inflation in which inflation happens due to increase in money supply with the people which results in increase in demand for good by the people in comparison to supply of goods available in the market whereas other is cost push inflation in which the inflation happen due to increase in cost of production so rise in price of raw material, wages and salaries of workers and cost of capital results in price of goods getting inflated which in turn results in company charging higher price for products from consumers.
  4. Another feature of inflation is that it in the short term it can be controlled by reducing the money supply in the economy which is done by the government through a reduction in government expenditure and central banks through increasing bank rates or rate of interest in the economy, and other such measures.
  5. Inflation hits the lower and middle class the most as their income does not rise in commensurate with inflation while people having high income do not get affected much by inflation. Similarly, income class or fixed income class people gets hurt the most as compared to business class people who to some extent are benefited by inflation.
  6. In a majority of countries all over the world, it is inflation which is more prevalent as compared to deflation.

As one can see from that inflation has many unique characteristics and as far as the government is concerned it should pay close attention to inflation because any carelessness on the part of government can lead to a big problem in the future for the country as a whole.

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