Things that cause inflation

Posted by Chidinma on Monday January 19, 2015 at 16:5:11:

Inflation is an economic situation that occurs when demand becomes higher than supply; explained in a layman’s term with an instance, inflation occurs when high demand for a product for instance fuel and there is short supply from fuel stations. This leads to higher cost of commodities and lower standard of living since more money is chasing for fewer commodities. The following are some of the causes of inflation in a country’s economy;

1. Higher Demand For A Particular Product: as mentioned earlier, inflation occurs when there is a high demand for a particular product or commodity and there is no subsequent increase in the production of such commodity to meet up demand; this will skyrocket the price of the product. Monopoly falls under this category and is another major cause of inflation; that is when one person or a group of people produce a particular commodity that is in demand for the masses.

2. Higher Wages: this is another major cause of inflation in an economy and it occurs when there is a major raise in the wages of employees. This gives them more spending power or more money to spend, and if there is no increase in the production of products from manufacturers in the country, there is likely to be inflation. Increase in wages can only occur if the country has a strong labour union.

3. Disaster: if there is a major natural disaster that disrupts the production of a commodity that is high on demand, there is bound to be an inflation since the disaster will likely lead to scarcity of that particular commodity without an increase in its production.

4. Increased cost of production: When the cost of production of particular goods or services increases, then the supplier will ultimately push the cost to the end users who end up paying higher for it.

5. Increased Taxation: When government tax also increase, this can also lead to increase in the general process of stuff in the market.