Meaning, Definitions, Characteristics, Causes and types
Inflation is a global phenomenon in present-day times. There is hardly any country in the capitalist world today which is not afflicted by the specter of inflation.
Inflation is a sustained rise in the average level of prices. Notice, the word sustained. Inflation does not mean a short-term increase in prices; it means prices are rising over a prolonged period of time. Therefore, in broad sense of term, it means a considerable and persistent rise in the general level of prices over a long period of time.
According to Prof. Crowther
Inflation is a state in which the value of money is falling, i.e. prices are rising.
According to Prof. Kemmerer
Inflation is too much currency in relation to the physical volume of business being done.
According to Pigou
Inflation exists when money income expanding more than in proportion to increase in earning activity.
According to Ackley
Inflation is a persistent and appreciable rise in the general level or average of prices.
According to Harry G. Johnson
Inflation is a sustained rise in prices.
According to Samuelson
Inflation denotes a rise in the general level of prices.
According to Paul Einzig
Inflation is a state of disequilibrium in which an expansion of purchasing power tends to cause, or is the effect of, an increase of the price level.
Features/Characteristics of Inflation
1. Inflation is popularly associated with a rise in prices.
This is based on observation of acts and is by and large correct. Barring recovery of prices from the depression as a result of monetary and fiscal measures adopted by the government, it would be agreed that an excessive rise in prices has generally been the hallmark of inflation.
2. Excessive supply of money
In times of war or other national emergency when the tax resources of the state are not sufficient to meet the needs for funds, governments resort to banks which make advances on the basis of government bonds and securities. This results in an expansion in the volume of paper currency as well as of bank credit in the country.
3. Vicious circle of inflationary spiral
Another important characteristic feature of inflation is the vicious circle of inflationary spiral created by the velocity of circulation of money. It will feed on itself to grow into an inflationary spiral. Since the prices are rising and also expected to rise, the community will have the least inclination to save money or hold cash assets as the value of money is decreasing.
Causes of Inflation
The following factors are responsible for inflation:
1. Increase in the supply of money
2. Increase in government expenditure
3. Increase in disposable personal income
4. Increase in business activities
5. Increase in extravagant expenditure
6. Increase in the demand for domestic goods in foreign countries
7. Deficit financing
8. Shortage of factors of production
9. Demand for higher wages
10. Natural calamities
11. Artificial scarcity of essential commodities
12. Increase in exports to earn foreign exchange
13. Prolonged industrial unrest