What are the causes of inflation?
The causes of inflation can broadly be divided into two classes: demand-pull inflation and cost-push inflation.
The former is due to an increase in the money supply in the economy. When people have an increased disposable income, they are willing to pay more for the same product. This allows producers to increase the cost of their products without making any other changes. The increase in money supply is done by the government to invigorate an economy which is moving towards a recessionary phase, something like what is being done around the world now. The government may also increase money supply by printing more money as they have no other way to acquire funds to buy what they require. An example of this could be Zimbabwe, where inflation has touched rates of over 1000% due to the government flooding the markets with more currency.
Cost-push inflation is caused due to a shortage of commodities that are required by people. Those who require them are therefore forced to pay a higher cost. An example of this could be an increase in the cost of petroleum products due to political unrest in the Middle East. This in turn leads to all other products in the economy also getting more expensive.
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