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Familiarity with the concept of inflation

Familiarity with the concept of inflation

Everyone has more or less information about inflation, but we decided to publish a short article on the website to get more familiar with the concept of inflation. Financing is a very important issue that drives companies to grow and develop and ultimately contribute to the economic growth of the country.

This financing is done from the monetary and financial sector. When people convert their money into coins and gold and keep it in a safe, the value goes out of the economy, and this will challenge investment financing in the long run. Therefore, in the economy, a solution must be found to get acquainted with the concept of inflation, so that people have more participation in the money and capital markets.


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One of the strategic decisions of the people is to convert their money into durable goods, gold and coins at the time of publication of inflation statistics or expectations from that inflation. But unfortunately, some of these decisions are wrong because we have made a mistake in retelling the concept of inflation and we are not fully familiar with the concept of inflation.

  • When it is stated that inflation has risen from 15% to 10%, it does not mean that prices have fallen by 5%, but that prices are still rising but the pace of price growth has slowed down.
  • When it is said that inflation has reached 15%, it must be determined which items in the CPI consumer price index have ultimately reduced inflation.

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In the continuation of the discussion of familiarity with the concept of inflation, you should know that the consumer price index and its changes are considered as inflation. But we should know that this index includes a number of goods and services. Each product has a specific weight in this index. Suppose the value of this index at the beginning of 94 is equal to 150 and at the end of 94 is equal to 162. In this case, the rate of change (inflation) is equal to 8%. Well, it should be examined which changes in one of the items of the aggregate consumer index have led to a price increase of 8%. Some items in this index may have even experienced a decrease in price, and in fact the increase in the price of some items (which weigh more) has caused the final price to rise. Well, changes in absolute prices have eventually led to inflation. The discussion of relative prices should not be forgotten.

(Relative price means the change in the price of one commodity with another.) Suppose that in a period when inflation was 8%, the relative price of clothing increased by 12%. Now, this clothing is part of the same consumer index, whose growth of 12% has been somewhat neutralized by the reduction of prices in other items of this index, and finally the result of 8%. The issue of inflation management is different from the issue of relative price management. In government management, it must implement monetary and fiscal policies, while in the discussion of relative prices, the reason for the high price of clothing compared to other items must be identified and resolved.

Transparency in this area will lead to a better understanding of the concept of inflation by the people and will ultimately affect their decision whether to enter their funds in the financial market or keep it in the form of gold and coins in the coffers. Of course, what the government should do needs further investigation. For example, the share of food and transportation in the consumer index is higher than other cases. Now the price increase of this group has been 20% and other items have experienced a decrease in price. Finally, inflation is less than 20% due to the reversal of price changes.

Some items are tangible to people, and people only consider price changes as the basis for increasing or decreasing inflation. In this case, it is necessary to examine the reason for the increase in food prices and transportation. Certainly, the lack of attention due to price growth may have led to the adoption of the wrong policy by the government, which will ultimately have a bad effect on society.

The reason for the price increase may be that the government has adopted a wrong policy that will ultimately have a bad effect on society. Perhaps the first policy that appears to curb inflation is for the government to take steps to reduce demand. So what if the increase in food and shipping prices is due to a shortage of supply? In this case, adopting policies that reduce demand will deal a bad blow to the economy. In this case, the government must strengthen the supply side. This is where the concept of relative prices comes into play. In the example above, we show that food and transportation prices are higher than other items (relative prices are higher). The government must find the root of the problem to determine what caused the relative price increase.

This was because the opposite could happen and the prices of goods that are more tangible to people have decreased, but due to increasing changes in the prices of other items, the consumer price index has finally increased (inflation). . The issue of clothing, food and transportation and medical services is very important to the people. We can not have a car, but we can not eat. An increase in the price of these items will in itself have a bad effect on people’s attitudes, and they will therefore achieve disappointing conditions in their calculations from the future. The desperate society will not be able to move and eventually the economic cycle of the country will be destroyed.

Finally, at the end of the discussion, familiarity with the concept of inflation, two issues are stated:

1- Consumer price index should be studied in detail to determine the general changes caused by this increase and decrease.

2- It is not necessarily right to seek monetary and fiscal policy in the presence or absence of inflation. This is because the shortage of production (price increase due to lack of supply) may be due to the presence of smuggled goods, which has ultimately hurt the domestic producer.

3- Careful examination of the above two cases by both the government and the people will lead to the best decision.


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