Inflation Essay In English With Quotations
“Inflation is taxation without legislation.”Milton Friedman.
A constant rise in prices of goods and services which results in reduction of purchasing power of people is called inflation. Although inflation is a part of the normal economic development of any country, any increase in inflation above a predetermined level is a cause of concern.
Inflation occurs when there is a mismatch between supply and demand of goods. As the purchasing power of consumers increases, the demand increases as well, but the supply is limited which results in price rise. Population explosion also creates an imbalance between supply and demand which further causes inflation.
“Inflation makes the wealthiest people richer and the masses poorer.”James Cook
During natural disasters such as floods and earthquakes, the production of goods and services declines significantly, further limiting the supply part and hence, cause price rise.
When the cost of raw materials increases it increases the manufacturing cost which in turns increases the price of a particular good.
“Production is the only answer to inflation.”Chester Bowles
The increase in the prices of fuel results in a rise in the price of goods. Any change in price of fuel immediately impacts the price of food items, since most of them are dependent on transport. Inflation, in short, is “too much money chasing too few goods”.
“Increases in money supply are what constitute inflation, and a general rise in prices is the symptoms.”Walter E. Williams.
High levels of inflation lead to bad effects on economic performance of the country. It adds pressure on the Central Bank to raise rates even though there is slow growth in the country’s economy. Thus, high inflation and rising interest rates slow down the economy. Inflation also affects investment as higher long-term inflation adversely affects growth and investment. High inflation is increasing the cost of credit and input costs of companies by excessively increasing their spending on raw materials and wages. Corporate investment is affected by increase in the cost of inputs and eventually increase in the final prices is seen and further decreases the confidence in the economic growth.
“Nothing so weakens the government as inflation.”John K. Galbraith
The Government forms various policies and regulations to keep a check on inflation rate. The central bank of the nation and the government plays an important role to control the supply of money in the market. Thus, maintaining a balance between the supply and demand can revive the economy from sluggish growth and help the nation to maintain healthy inflation rates.
“Inflation is like toothpaste. Once it’s out, you can hardly get it back in”Karl Otto Pohl