Inflation: definition, types, and causes

Inflation: definition, types, and causes
Table of contents
  1. About inflation
  2. Causes of inflation
  1.  Demand-pull factor
  2. Cost-push factor
  3.  Built-in factor
  1. How to cope during inflation
  1.  Invest wisely
  2. Live modestly
  3. Get a home or land

Understanding some key economic principles that could affect your income during this covid-19 pandemic is critical. We will take a look at inflation and other important information. 

About inflation

Inflation is the reduction in the purchasing strength of a nation's currency during a period. It is expected that countries that don't produce enough and depend sorely on imported products will have problems with inflation during this period. This is because many nations are on lockdown. For nations in this conundrum, inflation is unavoidable. To counter inflation, most countries use financial authorities, like the central bank, to take drastic necessary measures by making credit scarce to keep inflation within the range they would be able to an economy running smoothly. 

Causes of inflation

Three main factors affect inflation in the economy, they are:

 Demand-pull factor

This happens when the availability of money in circulation is more than the appropriate goods produced by the nation. This makes the few goods available to be more expensive and inflation arises. 

Cost-push factor

 This happens when the economy suffers a negative shock because money is now channeled into scarce resources. This could happen especially in oil-rich countries like Venezuela where oil revenues are mismanaged and not adequately used.

 Built-in factor

 This happens because there is now an apparent increase in the price of goods and services and citizens expect this trend to continue without finding ways to limit their spending. Citizens will expect high wages which will affect goods not worth it. 

How to cope during inflation

To cope with inflation, people should.

 Invest wisely

Don't be a spend drift find a viable business to invest in that can generate good dividends. 

Live modestly

 Don't overspend due to the huge amount in the economy, live your life quietly, and keep a low profile. 

Get a home or land

 Buying a home during an inflation period is a wise decision because houses are assets that do not lose value due to economic problems. Be smart, invest in landed properties.

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