Generally, in today’s time, inflation in the financial market mostly depends on the availability of products. When the supply or production of products decreases, inflation tends to increase. On the other hand, if the production or supply of products is high, inflation usually decreases.
Inflation means the general increase in the prices of goods and services over time. When inflation rises, the purchasing power of money decreases, which means people can buy fewer things with the same amount of money.
If a product costs ₹100 today and after one year its price becomes ₹110, this increase in price is called inflation. This happens in situations where the demand for a product is high but the supply is low.
If the price of a product is 100 today, but after one year it becomes 90, then inflation is low or decreasing or not be considered inflation factor. This means that the supply of the product is high, but the demand is low.
Main Causes of Inflation
Inflation is generally depending upon product and demand. In this case both product and demand are directly proportional. If customer demand is high regarding any product and production is less in that phase inflation should be high.
It means high demand low production. In another reason we can take if cost of raw material as well as fuel and labour cost increased then the product price would be automatically high.
- High Demand – When demand for goods is higher than supply, prices increase.
- Low Production – When production is low but customers are many, prices go up.
- Increase in Production Cost – When the cost of raw materials, fuel, or labor increases, product prices also rise.
- Economic Policies – Government policies, taxes, and money supply can also influence inflation.
Effects of Inflation
When inflation increased it effect directly on financial management system like
- Cost of living increases
- Savings lose value
- Daily expenses become higher
- Financial planning becomes more difficult
Note
Inflation is the rise in the overall price level of goods and services in an economy over time.
