What Is Meant By The Term Inflation?


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Muhammad Abdullah786 Profile
Inflation is a term which is known to most of us. It is also criticized by many of us. It is feared by all of us. But it is not understood by majority of us.Inflation is raising general level of prices. Inflation is present when the value of purchasing power is persistently running a head of the output of goods and services so that there is a continuous tendency for prices both for commodities and factors of production to rise, because the supply of goods and services and factors of production fail to keep pace with demand for them.
We can say that the indicator of inflation is a substantial persistent rise in the general price level over a long period of time.

The causes of inflation are usually grouped under two main heads which are;Demand pull inflation and cost push inflation.Demand pull inflation may be defined as a situation where aggregate demand for goods and services persistently exceeds the available supply of output at current prices. in other words when the supply of goods fails to match with its demand. It leads to increase in the general price level. In brief when too much money chases too few goods it is called demand pull inflation. The cost push inflation is caused by increase in the cost of production of goods.

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