Inflation Economic ECONOMY
| Inflation is an economic phenomenon that often feels like an unavoidable “shadow” in people’s lives. It is the continuous rise in the prices of goods and services over a period of time, but more than just a seasonal price increase, inflation is a reflection of the decline in the purchasing power of our money. In other words, the money we have can no longer buy as many goods as it used to.
Because of this, many questions often arise: why do these two things often occur simultaneously: why do prices tend to rise and why does the value of money weaken? The answer lies in the fundamental reciprocal relationship between supply and demand in the buying and selling process in the economy. Simply explained, inflation occurs when the money circulating in society exceeds the quantity of goods or services available. When people have a lot of money, they tend to increase demand for goods. If production and supply cannot keep up with the surge in demand, producers will respond by raising prices. This is what we know as demand-pull inflation. Inflation can also be caused by high production costs, such as raw materials, wages, and so on. When production costs rise, producers pass these increases on to consumers through higher selling prices, a phenomenon called cost-push inflation. So what is the relationship between rising prices and the depreciation of money? The two are closely related. The value of money can be measured by its purchasing power, which is how many goods and services can be purchased with a certain amount of money. When prices rise, the amount of goods you can buy with the same amount of money decreases. In other words, the money you keep in your wallet or bank will gradually lose some of its purchasing power over time. For example, the money that was once enough to buy a packed lunch with a variety of side dishes is now only enough to buy half of that. To combat inflation, central banks, such as Bank Indonesia, typically implement tight monetary policies, such as raising interest rates. Raising interest rates further increases the cost of borrowing, reducing demand for credit and slowing economic growth, or inflation. However, this policy can also risk slowing overall economic growth and increasing unemployment. In conclusion, inflation is a complex problem that reflects fundamental imbalances in the economy. Rising prices and the depreciation of money are two sides of the same coin, both rooted in factors such as demand, supply, and monetary policy. Understanding these relationships is crucial for managing personal finances effectively and wisely, aiming to maintain economic stability. Price stability is key to maintaining sustainable economic growth and improving overall public welfare. Stop inflation by starting with simple steps like creating a contingency plan, investing, and using insurance. Therefore, it is crucial to understand inflation early on to manage finances effectively and ensure long-term economic stability. By: Aprilla Wina Dwinita |
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