INFLATION OR Rising Prices

INFLATION OR Rising Prices
Inflation is one of the major problems of the world. It is an economic term. It means any increase in the supply of money. Inflation occurs when the central bank expands the money supply or money in circulation. If there is no increase in the out put of of goods and services, expansion of the money supply raises the general level of prices. In other words inflation describes a fall in the purchasing power of money. So in ordinary speech, inflation is often taken to mean high prices.
There may be many causes of inflation. First, faulty economic policy of the Government is one of the major cause. Some time, to meet the deficit in budget the Government issues more currency. The supply of money in circulation money in budget the Government issues more currency. The supply of money in circulation increases. But the supply or services and goods remain the same. This results in price hike. Secondly, the inflow of foreign aid also enhances the rate of inflation. Thirdly, import of unnecessary things and spending of foreign on luxury also bring about inflation. Fourthly, high rate of increase in population is yet another cause. With the increase in population demand for service and goods like foods, clothing, housing, water supply, electricity, sanitation increase. If the supply remains the same, the price spiral goes up. Finally low production also gives birth to inflation. When agricultural or industrial production decreases, a shortage of goods and services is created. This again results in high prices.
Inflation, inflationary trends and rising prices can be checked by taking certain steps. First, the Government should frame reasonable and realistic policies. Unnecessary expenditure on non productive sector should be reduced. It should be careful in the issuing of currency. Secondly, every effort should be made to increase the production of goods and services. This step will keep the prices down. Thirdly, there should be restriction on the import of luxury goods like costly cars and cosmetic items. Fourthly, family planning programs should be popularized to control the increasing population. Finally, the Government should raise the rate of both direct and indirect taxes so that the individual consumer may have less money to spend.
Inflation or rising prices affects different people differently. On the level of production if prices are rising, business activity will be stimulated. Profit will be greater than anticipated. If it is desired to maintain a high level of production, gently rising prices are to be preferred to falling prices. On the income distribution level, the income of different groups of people are not equally affected. Some people derive their income from profits. When prices rise, profit are higher than before. The profit receives get a rise in their income. Some people are wage earners. In times of rising prices, their real wages fall. Fixed income group consists of Government employees and retired people. In a period of rising prices, all people on fixed income find that their incomes decline.