Definition of inflation
In economics, inflation is a process of rising prices in general and continuous associated with market mechanisms that can be caused by various factors, among others, private consumption increased, excess liquidity in the marketplace that triggered the consumption or even speculation , to include also due to the lack of distribution launch goods.with other words, inflation is also a process of decline in currency values are continuous. Inflation is the process of an event, not the high-low price level. This means high price level which is considered not necessarily indicate inflation. Inflation is an indicator to see the level changes, and is considered to occur if the price increase took place continuously and interact with each other. The term inflation is also used to mean increased supply of money that are sometimes seen as a cause of rising prices. There are many ways to measure the rate of inflation.
Inflation can be classified into four groups, namely inflation is mild, moderate, severe, and hyperinflation. Mild inflation occurs when prices are below the 10% a year, inflation was between 10% -30% a year; weight between 30% -100% a year; and hyperinflation or uncontrollable inflation occurs when prices are above 100% a year.
Inflation can be classified into four groups, namely inflation is mild, moderate, severe, and hyperinflation. Mild inflation occurs when prices are below the 10% a year, inflation was between 10% -30% a year; weight between 30% -100% a year; and hyperinflation or uncontrollable inflation occurs when prices are above 100% a year.
Cause
Inflation can be caused by two things, namely the pull of demand (excess liquidity / money / currency) and the second is the pressure (pressure) production and / or distribution (lack of production (product or service) and / or also include a lack of distribution). [ citation needed] For the first cause is more affected than the state's role in monetary policy (Central Bank), while for the second reason is more affected than the state's role in the policy executor in this case held by the Government as fiscal (taxation / charges / incentives / disincentives), infrastructure development policies, regulations, etc..
Demand pull inflation due to the excessive total demand which is usually triggered by a flood of liquidity in the market resulting in high demand and trigger a change in the price level. Increasing the volume of medium of exchange or liquidity associated with demand for goods and services resulted in increased demand for factors of production. Increased demand for production factors that then causes the production factor price increases. So, inflation is due to an increase in total demand as the economy in question in a full employment situation,usually caused by stimulation of the excessive volume of market liquidity. The flood of liquidity in the market also caused by many factors other than the main course
The central bank's ability to regulate the circulation of money, central bank interest rate policy, to the speculation that the action occurred in the financial industry sector.
Cost push inflation due to the scarcity of production and / or also include the scarcity of distribution, although demand generally no changes are increased significantly. The existence of non-launch flow or reduced production of these distributions are available from the average normal demand could trigger a price increase in accordance with the enactment of the law of demand-supply, or also due to the formation of a new position that the economic value of these products due to the pattern or distribution of the new scale. Decreased production itself can occur due to various things such as technical problems at the source of production (factories, plantations, etc.), natural disasters, weather, or the scarcity of raw materials to produce page, action speculation (hoarding), etc., thus triggering the production of scarcity relevant in the market. So did the same thing can happen to the distribution, which in this case the infrastructure factor plays a very important role.
Cost push inflation due to the scarcity of production and / or also include the scarcity of distribution, although demand generally no changes are increased significantly. The existence of non-launch flow or reduced production of these distributions are available from the average normal demand could trigger a price increase in accordance with the enactment of the law of demand-supply, or also due to the formation of a new position that the economic value of these products due to the pattern or distribution of the new scale. Decreased production itself can occur due to various things such as technical problems at the source of production (factories, plantations, etc.), natural disasters, weather, or the scarcity of raw materials to produce page, action speculation (hoarding), etc., thus triggering the production of scarcity relevant in the market. So did the same thing can happen to the distribution, which in this case the infrastructure factor plays a very important role.
Increased production costs due to 2 things, namely rising prices,such as raw materials and rising wages/salaries, for example, civil servants salary increase would result in private efforts to raise the prices of goods.
Classification
Based on its origin, inflation can be classified into two, namely the inflation that comes from within the country and inflation comes from abroad. Inflation comes from within the country such as occurs due to the budget deficit financed by printing new money and market failure resulting in food prices to be expensive. Meanwhile, inflation from abroad is the inflation that occurred as a result of rising prices of imported goods. This could occur due to the cost of producing goods overseas high or an increase in import tariffs of goods.
Inflation also can be divided based on the amount of coverage influence on prices. If the price increases that occur relate to only one or two specific items, inflation is called inflation closed. However, if the price increase occurred in all goods in general, the inflation is called the open inflation. However if the attack inflation at all times so great that prices are constantly changing and growing so that people can not hold money for longer due to declining value of money is called uncontrolled inflation (Hyperinflation).
Inflation also can be divided based on the amount of coverage influence on prices. If the price increases that occur relate to only one or two specific items, inflation is called inflation closed. However, if the price increase occurred in all goods in general, the inflation is called the open inflation. However if the attack inflation at all times so great that prices are constantly changing and growing so that people can not hold money for longer due to declining value of money is called uncontrolled inflation (Hyperinflation).
Based on the severity of inflation can also be distinguished:
1. Inflation is mild (less than 10% / year)
2. Inflation is moderate (between 10% to 30% / year)
3. Inflation weight (between 30% to 100% / year)
4. Hyperinflation (more than 100% / year)
Measuring inflation
Inflation is measured by calculating the percentage change in the level of change in a price index. The price index of them:
• The consumer price index (CPI) or the consumer price index (CPI), is an index which measures the average price of certain goods purchased by consumers.
• Index cost of living or cost-of-living index (COLI).
• Index cost of living or cost-of-living index (COLI).
• The producer price index is an index which measures the average price of goods that required manufacturers to conduct production process. IHP is often used to predict future CPI level because of changes in raw material prices increase production costs, which then increases the price of consumer goods.
• commodity price index is an index which measures the prices of certain commodities.
• price index of capital goods
• price index of capital goods
• GDP Deflator shows the change of price of all new goods, locally produced goods, finished goods, and services.
Impact
Workers with fixed salaries are very disadvantaged by the Inflation.Inflation have a positive impact and negative impact of severe, depending on whether or not inflation. If inflation is mild, it has a positive influence in the sense to stimulate the economy better, that is to increase national income and get people excited to work, save and invest. Conversely, in times of severe inflation, which in the event of uncontrolled inflation (hyperinflation), the economic situation became chaotic and felt sluggish economy. People are not excited about working, saving, or make investment and production because prices are rising rapidly. The recipients of fixed incomes such as civil servants or private employees and workers will also be overwhelmed bear and keep up the price so that their lives become increasingly degenerate and collapsed from time to time.
Workers with fixed salaries are very disadvantaged by the Inflation.Inflation have a positive impact and negative impact of severe, depending on whether or not inflation. If inflation is mild, it has a positive influence in the sense to stimulate the economy better, that is to increase national income and get people excited to work, save and invest. Conversely, in times of severe inflation, which in the event of uncontrolled inflation (hyperinflation), the economic situation became chaotic and felt sluggish economy. People are not excited about working, saving, or make investment and production because prices are rising rapidly. The recipients of fixed incomes such as civil servants or private employees and workers will also be overwhelmed bear and keep up the price so that their lives become increasingly degenerate and collapsed from time to time.
For people who have a fixed income, inflation is very detrimental. We take the example of a retired civil servant in 1990. In 1990, his pension is adequate to meet the necessities of life, but in the year 2003-or thirteen years later, the purchasing power of money may be only a half. This means that retirement money is no longer sufficient to meet their needs. Conversely, people who rely on income based benefits, such as businessmen, not impaired by the existence of inflation. So it is with employees who work in companies with salaries following the rate of inflation.
Inflation also causes people reluctant to save because of the currency goes down. Indeed, savings earn interest, but if the interest rate above inflation, the value of money is still declining. When people are reluctant to save money, business and investment will be difficult to develop. Because, to grow the business need of funds from bank savings obtained from the public.
For people who borrow money from banks (the debtor), inflation is beneficial, because at the time of payment of debts to creditors, the value of money is lower than at the time of borrowing. Instead, the lender or the lender will lose money because the value of money returns lower than at the time of borrowing.
For producers, inflation can be beneficial if the income earned is higher than the increase in production costs. When this happens, producers will be forced to double its production (usually happens in big business). However, when inflation led to rising production costs and eventually harming producers, then producers are reluctant to continue production. Manufacturers could stop production for a while. In fact, if not able to follow the rate of inflation, the business may be bankrupt manufacturer (usually occurs in small businesses).
In general, inflation can result in reduced investment in a country, pushing up interest rates, encouraging speculative investment, the failure of development, economic instability, balance of payments deficits, and declining levels of life and prosperity.
For producers, inflation can be beneficial if the income earned is higher than the increase in production costs. When this happens, producers will be forced to double its production (usually happens in big business). However, when inflation led to rising production costs and eventually harming producers, then producers are reluctant to continue production. Manufacturers could stop production for a while. In fact, if not able to follow the rate of inflation, the business may be bankrupt manufacturer (usually occurs in small businesses).
In general, inflation can result in reduced investment in a country, pushing up interest rates, encouraging speculative investment, the failure of development, economic instability, balance of payments deficits, and declining levels of life and prosperity.
The role of central banks
The central bank plays an important role in controlling inflation. The central bank of a country in general, trying to control inflation at reasonable levels. Some central banks even have an independent authority in the sense that the policy should not be intervened by parties outside the government-including the central bank. This is caused by a number of studies show that a less independent central bank - one of them due to government intervention aimed at using monetary policy to stimulate the economy - will push inflation higher.
The central bank generally rely on the money supply and / or interest rate as an instrument in controlling prices. In addition, central banks are also obligated to control the exchange rate of the domestic currency. This is because the value of a currency can be either internal (mirrored by the rate of inflation) and external (exchange rate). Currently, the pattern of inflation targeting widely adopted by central banks around the world, including by the Bank Indones
Fight Inflation
1. Monetary Policy
Monetary policy can be made through the following instruments:
• diskoto Politics (Political tight money): the bank to raise interest rates so that the amount of money in circulation can be reduced.
• Politics open market: central bank to sell bonds or securities to capital markets to absorb money from the public and by selling securities the central bank can suppress the growth of the money supply so that the money supply can be reduced and the rate of inflation could be lower.
• Improved cash ratio: Raising the cash reserves in the bank so that the amount of money banks can lend to borrowers / society to be reduced. This means to reduce the amount of money in circulation.
2. Fiscal Policy
Fiscal policy can be done through the following instruments:
• Organize receipts and government spending. The government does not increase its spending for the budget deficit is not.
• Raise taxes. By raising taxes, consumers will reduce their consumption as part of their income to pay taxes.
3. Non-Monetary Policy
Non-monetary policy instruments can be done through the following:
• Encourage employers to increase their harvests.
• Pressing the wage rate.
• Government to supervise the price and once set a maximum price.
• The government made the distribution directly.
• Reduction of very severe inflation (hyper inflation) taken by way of sneering (cutting the value of currency). Senering This has been done by the government in the 1960s when inflation reached 650%. The government cut the value of the currency denomination Rp. 1000.00 to Rp. 1.00.
• Policies related to the output. The increase in output can reduce the rate of inflation. The increase in the amount of output can be achieved for example by reduction of import duty policy that tends to increase imports of goods. Increasing the number of goods in the country tends to reduce prices.
• pricing policies and indexing. This is done by determining the ceiling price.
1. Monetary Policy
Monetary policy can be made through the following instruments:
• diskoto Politics (Political tight money): the bank to raise interest rates so that the amount of money in circulation can be reduced.
• Politics open market: central bank to sell bonds or securities to capital markets to absorb money from the public and by selling securities the central bank can suppress the growth of the money supply so that the money supply can be reduced and the rate of inflation could be lower.
• Improved cash ratio: Raising the cash reserves in the bank so that the amount of money banks can lend to borrowers / society to be reduced. This means to reduce the amount of money in circulation.
2. Fiscal Policy
Fiscal policy can be done through the following instruments:
• Organize receipts and government spending. The government does not increase its spending for the budget deficit is not.
• Raise taxes. By raising taxes, consumers will reduce their consumption as part of their income to pay taxes.
3. Non-Monetary Policy
Non-monetary policy instruments can be done through the following:
• Encourage employers to increase their harvests.
• Pressing the wage rate.
• Government to supervise the price and once set a maximum price.
• The government made the distribution directly.
• Reduction of very severe inflation (hyper inflation) taken by way of sneering (cutting the value of currency). Senering This has been done by the government in the 1960s when inflation reached 650%. The government cut the value of the currency denomination Rp. 1000.00 to Rp. 1.00.
• Policies related to the output. The increase in output can reduce the rate of inflation. The increase in the amount of output can be achieved for example by reduction of import duty policy that tends to increase imports of goods. Increasing the number of goods in the country tends to reduce prices.
• pricing policies and indexing. This is done by determining the ceiling price.
4. Real Sector Policy
Real sector policies can be done through the following instruments:
• Government to stimulate banks to provide more specific credit to MSMEs (Micro Small Medium Enterprises). For example BRI bank launched this year as Microyear.
• Pressing the flow of imported goods in a way to raise taxes.
• stimulate people to use domestic products.
Real sector policies can be done through the following instruments:
• Government to stimulate banks to provide more specific credit to MSMEs (Micro Small Medium Enterprises). For example BRI bank launched this year as Microyear.
• Pressing the flow of imported goods in a way to raise taxes.
• stimulate people to use domestic products.
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