The Meaning of Inflation and Its Direct Impact on Society, Also Learn Its Causes

Kapanlagi.com - Economic growth is an issue that is never-ending to discuss. This is because economic growth is a very important thing to consider. The economic growth of a country greatly affects the welfare of its citizens. Inflation is often referred to as one of the signs of hindered economic growth. So, what is the actual meaning of inflation?

In general, inflation is often interpreted as a phenomenon when the prices of goods and services continue to rise continuously. As a result, the purchasing power of the community will decrease. The circulation of money is hindered, so the overall economy of a country will also be disrupted. That is why it is important to know the meaning of inflation, its causes, and how to overcome it.

Summarized from various sources, here is an explanation of the meaning of inflation and important things that must be known.

1. The Meaning of Inflation According to Dictionaries and Experts

(credit: unsplash)

Inflation is a common term in the field of economics. However, not only those who are involved in the economic realm, but also the general public have discussed the topic of inflation.

According to the Great Indonesian Dictionary (KBBI), the meaning of inflation is the decrease in the value of money due to the large and rapid circulation of money, causing an increase in the price of goods.

In addition to the general definition in the dictionary, several economic organization experts have also made definitions of the meaning of inflation. Here are some definitions of inflation according to economic organizations and experts.

1. Bank Indonesia

According to Bank Indonesia, inflation is the tendency of prices to increase generally and continuously.

2. Sadono Sukirno

Sadono Sukirno called inflation a phenomenon of rising prices in an economic system.

3. Winardi

According to Winardi, inflation is a phenomenon when the purchasing power of the community decreases and can occur during a certain period.

4. Dwi Eko Waluyo

Dwi Eko Waluyo believes that inflation is one form of economic disease that can be experienced by almost every country. Inflation occurs because of the tendency of continuously rising prices.

2. Types of Inflation

Inflation is a complex economic problem. Inflation can occur in various countries at the same time with varying degrees. Yes, generally based on its level, inflation is divided into several types.

So, in addition to the meaning of inflation, it is also important to know its types as additional information. Here are some types of inflation based on their levels.

1. Mild/creeping inflation

Mild inflation is a type of inflation characterized by a low inflation rate, which is below 10% per year. In addition, as the name suggests, price increases in this type of inflation also occur relatively slowly.

2. Moderate inflation (galloping inflation)

Next, moderate inflation (galloping inflation) is inflation that occurs with an increase in the range of 10-30% per year. Meanwhile, the increase can occur in a relatively short time.

3. Severe inflation (high inflation)

Third, severe inflation (high inflation) with an increase in the range of 30-100% per year. This type of inflation usually also occurs significantly, making it difficult to control.

4. Very severe inflation (hyperinflation)

Finally, very severe inflation (hyperinflation). The increase in the inflation rate can reach above 100% in one year. Indonesia experienced this inflation in 1998 with a magnitude of up to 600%.

3. Causes of Inflation

(credit: unsplash)

At first glance, as discussed earlier, inflation means a continuous increase in the price of goods. Therefore, it can be understood that in general, the cause of inflation is the increase in prices itself. However, if examined more deeply, there are still several things that can cause inflation. Here are some of them.

1. Increasing Production Costs

An increase in production costs will certainly affect the price of a product. The cause of this inflation is more prone to be experienced by developed and developing countries with low unemployment rates.

2. Increasing Demand

When the demand for a product increases, the price of the product generally increases as well. This can also cause inflation, especially if the demand is too excessive and continues to increase, while the supply remains stagnant.

3. Increasing Circulation of Money

The increasing circulation of money in society can also cause inflation. This is because when there is a lot of money in circulation, the purchasing power of the community will increase. As a result, the demand and availability of goods will become unbalanced.

4. Impact of Inflation

Inflation can indeed become a major economic phenomenon in a country. However, the impact of inflation will also be directly felt by the community. Here are some of the impacts of inflation.

1. Inflation can lead to a weakening of purchasing power.

2. Inflation can also affect people's interest in saving.

3. Inflation will cause the process of calculating the cost of goods sold to become difficult and inaccurate.

4. At the national level, inflation will also lead to a decrease in export and import activities.

5. How to Overcome Inflation

(credit: unsplash)

As a major phenomenon in the field of economics, inflation can be experienced by any country at any time. When experiencing inflation, especially the severe one, the economic order will collapse. Not only the economy, but inflation can also affect other aspects in a country. Therefore, ways to overcome inflation must be taken immediately.

To overcome inflation, there are several steps that can be taken by policymakers. Here are some of them.

1. Fiscal Policy

Fiscal policy is a policy related to government budget revenues and expenditures. This policy can be applied through efforts to increase tax rates, reduce expenditures, and make loans.

2. Monetary Policy

Meanwhile, monetary policy is a policy carried out by adding or reducing the amount of money in circulation. In addition, monetary policy can also be carried out by conducting open market operations.

3. Non-Fiscal and Non-Monetary Policy

The third way can be done with five steps, as follows:

- Increase production results

- Facilitate the entry of imported goods

- Set maximum prices

- Stabilize people's income

- Monitor the distribution of goods

Those are some of the explanations about the meaning of inflation that are important to know. Hopefully, this article is useful and can increase knowledge.

(kpl/gen/psp)