In the world of economics there are many phenomena that are important to know and one of the popular ones is inflation. Basically, inflation is a general and sustained increase in the prices of goods and services in a country over a certain period of time. This means that under conditions of inflation, the same money will buy fewer goods or services than before.
In fact, it is important to understand the causes of inflation in an economic context because inflation influences economic decisions, the value of money, economic stability and monetary policy
Apart from that, this understanding is also important because it influences investment decisions, society and monetary decisions from central banks.
So, to better understand what inflation is, its meaning according to experts, the causes of its occurrence in Indonesia, its types, impact, how to prevent it, and how to avoid it with Bitcoin and crypto assets, see the complete review below.
What is Inflation?
Inflation is a phenomenon where the prices of goods and services in an economy generally and continuously increase over a certain period of time. In the context of inflation, the purchasing power of the same money becomes lower so that more money is needed to buy the same goods and services as before.
The inflation rate is expressed as a percentage and is measured using a price index, which records changes in the price of a group of goods and services that represent society’s average consumption level.
Understanding the basic concept of inflation is very important because of its widespread impact. Inflation results in a decrease in the purchasing power of money, which means people have to spend more money to buy the same goods and services. Understanding this concept helps individuals plan their finances more carefully.
Additionally, understanding inflation is very relevant in the context of investment and savings. Inflation can reduce the real value of savings and investments if the rate of return on investments does not keep pace with or exceed the rate of inflation.
Knowledge about inflation also plays an important role in following the monetary policy implemented by the central bank. Central banks often use interest rates as a tool to control inflation.
This understanding helps individuals and businesses plan their financial strategies by considering changes in interest rates.
Ultimately, understanding inflation is the key to making wise financial decisions and planning a better financial future in the face of ever-changing economic dynamics.
Understanding Inflation According to Experts
In some expert views, inflation is basically an economic phenomenon that is seen as a problem. The following are various definitions and views on inflation from economists that are important to know, including:
Inflation is a condition where the purchasing power of currency decreases over a certain period of time. This occurs when the amount of money in circulation is greater than the amount of goods and services available. This concept is explained as an economic phenomenon that results in an overall increase in prices.
Dwi Eko Waluyo
Inflation is an economic problem that generally occurs in almost all countries. This refers to continuous price increases that occur frequently. Dwi Eko Waluyo expressed this view in his book entitled Macroeconomic Theory, published in 2002.
Inflation is an increase in prices that occurs in the economy. This explanation can be found in his book entitled “Macro Economics,” published in 2002.
Inflation is the process of increasing the price of goods in general which continues over a certain period.
A. P. Lahnerinflation
Inflation is a condition where demand for various goods in the economy exceeds overall supply.
Basically, to understand inflation well, it is necessary to master a number of basic concepts that form the basis of understanding this phenomenon. Several key concepts that need to be understood in the context of inflation include price indexes, purchasing power, supply and demand dynamics, business cycles, monetary policy, and their impact on various types of investment.
Get to know the causes of inflation in Indonesia
Inflation that occurs in Indonesia is a phenomenon in the economic world that requires preventive and control measures. So, what are the causes of inflation in Indonesia that you need to know? Here are some of the causes, namely:
Inflation in Indonesia is caused by increasing demand, which is often referred to as “demand-pull inflation”. This occurs when people show a strong attraction to a particular good or service.
This kind of inflation can develop when there is an excessive desire to use more of the goods and services available on the market. This increased demand results in an increase in prices, especially if supply remains constant, which ultimately results in an increase in prices.
Increase in Money Circulation
The cause of inflation in Indonesia is the increase in the amount of money in circulation. This theory, known as “monetary inflation,” states that there is a relationship between the amount of money in circulation and prices. When the amount of money in the economy increases but the quantity of goods remains constant, then the prices of goods tend to rise.
An increase in the amount of money in the economy can occur if the country faces a budget deficit. To cover the deficit, the government often prints new money, which in turn can cause prices to rise. This is one of the factors that can trigger inflation in Indonesia.
Increased Production Costs
The cause of inflation in Indonesia is increasing production costs, known as “cost-push inflation.” This type of inflation is caused by an increase in production costs over a certain period of time.
Usually, this occurs when the costs of production factors continue to rise. In Indonesia, this can be caused by several factors, including a decline in the domestic currency exchange rate, inflation in trading partner countries, and an imbalance between labor and demand for manufactured goods.
An increase in production costs can have an impact on the price of goods, especially if producers have to increase prices to cover increased production costs.
There is Mixed Inflation
The cause of inflation in Indonesia is mixed inflation which is influenced by an increase in supply and demand. The cause of inflation in Indonesia creates an imbalance between supply and demand.
When demand for a good or service increases, the supply of goods and production factors will decrease.
Inflation in Indonesia can also be caused by a mixture of factors increasing supply and demand. An imbalance between supply and demand for goods and services can cause prices to rise.
This especially happens when demand suddenly increases, while supply cannot keep up. This type of inflation can be difficult to control.
The consequences of people’s behavior
One of the causes of inflation in Indonesia is expected inflation which is influenced by people’s behavior. This happens when people hope that future economic conditions will get better.
These expectations could lead to higher demand or increased production costs. This inflation of expectations may be difficult to detect because the changes that occur are not always significant, but can have long-term impacts.
Types of Inflation
Inflation that can occur in the economy basically consists of various types. The following are the types of inflation you need to know, including:
Based on its nature
Mild Inflation (Creeping Inflation)
This type of inflation is associated with an increase in the rate of inflation that occurs at a low rate, usually less than 10% a year. This inflation is characterized by a slow and gradual increase in prices.
Moderate Inflation (Galloping Inflation)
This type of inflation has a slightly higher rate than light inflation, with a rate of between 10-30% per year. Moderate inflation is characterized by significant price increases over a short period of time.
Heavy Inflation (High Inflation)
Heavy inflation is a type of inflation that has a high level, reaching 30-100% per year. At this level, prices of necessities rise significantly and are difficult to control.
Very Heavy Inflation (Hyperinflation)
Very heavy inflation is a type of inflation that occurs on a large scale and reaches more than 100% per year. Indonesia has experienced hyperinflation, even reaching 600% in 1998. This was caused by massive printing of money to cover the budget deficit at that time.
Based on origin
Domestic Inflation (Domestic Inflation)
Domestic inflation comes from within the country. Usually it starts with a deficit in the state budget. When the government decides to finance the deficit by printing new money, this will increase the amount of money in circulation.
This increase tends to increase the prices of necessities, causing domestic inflation.
Apart from that, domestic inflation can also be triggered by increases in domestic production costs and increased public demand for goods, while supply cannot keep up.
Import inflation comes from abroad. This happens when the prices of necessary goods abroad or in trading partner countries increase. Because the price of necessities abroad increases, the price of these goods when resold in Indonesia will also increase.
Based on the cause
Demand Inflation (Demand Pull Inflation)
This type of inflation occurs because of an imbalance between high demand and unbalanced supply in production. This results in an increase in the price of goods in accordance with the law of demand, namely when demand is high but supply remains constant, then prices will increase.
Production Cost Inflation (Cost Push Inflation)
Production cost inflation is caused by an increase in production costs resulting from an increase in input costs or production factors.
Bottle Neck Inflation
Bottle Neck inflation is caused by unbalanced demand or supply factors.
Impact of Inflation
The existence of inflation will of course have an impact, including on income, exports, basic price calculations, and exports. The following are some of the economic and social impacts that arise due to inflation, including:
Impact of Inflation on Income
Inflation can have both positive and negative impacts on individual income. In some situations, such as mild inflation, this might encourage businesses to expand production, which in turn could increase economic activity.
However, inflation can be detrimental for those on a fixed income because the value of their money remains fixed, while the prices of goods and services rise.
Impact of Inflation on Exports
Another impact of inflation is a decrease in a country’s export capability. Inflation can make export costs higher, thereby reducing the competitiveness of exported goods. As a result, the country’s export income may decrease.
Impact of Inflation on Cost Price Calculations
Inflation can make it difficult to calculate the cost price because it can cause the cost price to be too low or too high. Future inflation rates are often difficult to predict accurately. This can result in inaccuracies in determining the cost price and selling price.
The Impact of Inflation on Interest in Saving
In periods of inflation, people’s interest in saving tends to decrease. This is caused by lower interest income from savings while savers still have to pay administration fees for their savings.
How to Overcome Inflation?
After knowing what the causes of inflation are and their impacts, it is also important to understand how to overcome inflation. The following are various strategies and policies that can be used to control inflation, namely:
One of the policy options that can be taken is monetary policy. The main objective of monetary policy is to maintain the stability of the value of money in the hope of improving people’s welfare.
To achieve this goal, several actions that can be taken include regulating cash supplies, adjusting discount rates to influence interest rates, and implementing open market operations policies.
Fiscal policy is measures to overcome inflation by influencing government revenues and expenditures. This policy has several benefits, such as savings in government spending and adjustments to tax rates.
Non-monetary and non-fiscal policies are actions taken without affecting the amount of money in circulation or state income and expenditure. This type of policy includes:
Increase production and the number of goods available on the market.
Setting real wages that take into account the inflation rate.
Controlling and supervising prices, including setting maximum price policies by the government.
How to Avoid Inflation with Bitcoin and Crypto Assets
Avoiding inflation with Bitcoin and crypto assets is essentially one approach considered by some. This is because Bitcoin and crypto assets are often considered a hedge against inflation due to certain properties they have.
In this case, someone can buy Bitcoin or crypto assets as a long-term investment with the hope that their value will continue to increase over time. Some investors also consider crypto assets as an alternative to storing value such as gold. In addition, there are also investors who use Bitcoin and crypto assets as part of a broader investment portfolio to reduce risk. Diversification allows them to protect themselves from large value fluctuations.
Furthermore, some investors also actively trade Bitcoin and crypto assets to take advantage of rapid price fluctuations. It allows you to profit from significant price changes.
Then, you can also use the DeFi (decentralized finance) platform or staking to get returns by storing crypto in supporting protocols. This can be a way to earn passive income that can fight inflation.
In conclusion, several causes of inflation are increasing demand, increasing money in circulation, increasing production costs, mixed inflation, and the consequences of people’s behavior.
Meanwhile, the impacts of inflation include income, basic price calculations, and interest in saving. On the other hand, how to overcome inflation can be done with several policies, namely monetary, physical and non-monetary.
It is also important to understand that controlling inflation is the key to maintaining economic stability and social welfare.
By controlling inflation, the economy can operate more efficiently, and consumers and businesses can plan better for their future.
Therefore, efforts to control inflation are an important component of a country’s economic policy.
Now you understand what inflation is, its meaning according to experts, the causes of its occurrence in Indonesia, its types, impacts, how to prevent it, and how to avoid it with Bitcoin and crypto assets.
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