Firstly, inflation can be defined as an economic system where more money is purchasing few goods.
In Nigeria for example we are really running a high level of inflation.
The poor are really suffering from this inflation.
There are too things to buy but no money to buy them. Inflation is the continuous rise in the price of goods and services as a result of large volume of money in circulation used in the exchange of the few available goods and services.
Inflation can also be seen as a situation where there is persistent increase in the prices of commodities,and this is not matched with increase in production.
Inflation is divided into two main types
Firstly,we have an inflation that is gradual rise in the price of goods and services caused by under_production, hoarding and increase in the volume of money in circulation in a country and this type of inflation is known as ordinary inflation.
Secondly,we have another inflation that is continuous sharp and not easy to control rise in the prices of goods and services which occurs mainly as a result of large volume of money in circulation far more than the available goods and services.
This type of inflation is known as persistent inflation.
During inflation in a country there is said to be Galloping prices.
What is Galloping prices?
Galloping prices may be defined as continuous rise in the prices of goods and services.it is the same as period of inflation in a country.
What are the causes of inflation
The following are the main causes of inflation.
Firstly, inflation may occur if increase in demand does not correspond with increase in the quantity of goods and services supplied.
Secondly, Decrease in production decreases the quantity of goods available without equal decrease in the volume of money in circulation.
Thirdly, war diverts people's attention away from the production of goods to the acquisition of arms and ammunitions.
Fourthly, when there is an increase in the cost of production,this will be passed to consumers in form of high prices of goods.
Further more, Monopoly can cause inflation because monopolists may deliberately reduce production in order to make good profits thereby causing inflation.
Moreover, inflation can also be caused by hoarding. Hoarders reduce the quantity of goods available irrespective of the level of production.
Additionally,over population in addition to large volume of money in circulation causes galloping prices.
Poor weather too causes inflation in a country because it reduces the quality of agricultural produce available.
Poor storage facilities is also one of the causes of inflation because it lead to the consumption of all goods produced at a particular period without reserve.
Other causes of inflation may include,
Deficit budget, increase in wages, Reduction of imports, Natural disasters, General industrial strike, increase in bank lending etc.
*What can a country do to prevent or reduce inflation??
Firstly there should be an existence of surplus budget,this will help to reduce the volume of money in circulation.
Secondly, There should be an increase in direct tax as this will also go a long way in reducing the volume of money in circulation.
Thirdly, There should be a modern technology because it will lead to increase in production and make more goods available.
Further more, Banks should increase in bank rates as this will discourage commercial banks from borrowing and lending to people.
Additionally, There should be a good and competent provision of storage facilities,this will help to preserve goods for the rainy season,when production will decrease.
This is one of my entry for the aprilinleo monthly prompt, read about it and join
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