Inflation is a type of indicator that in the field of finance works as signals that indicate a possible growth or slowdown of the market in relation to the products and services that are in a buying and selling market. Along with these variables, measurements of the country’s economies are taken into account, such as the factors of production, import and export.
When high inflation is present in the economy of a country, it is an indicator of the levels and capacity that an average consumer has to be able to acquire a good or service, directly affecting costs positively or negatively. This precisely means that purchasing power can increase or decrease as the case may be.
Types of inflation
The factor of the economic variables that directly affects this type of inflation are production costs. This causes the prices of the products or services that are involved in the process to rise directly, and can occur for various reasons such as the fact that there is a lack of some resources, the increase in salaries or interest rates in banks. .
This economic scenario occurs when the demand curve directly affects the level of inflation. This happens when for some reason the sellers of products or services decide to lower prices considerably, generating a fight caused by buyers who expect prices to drop even more.
It is a scenario that sometimes occurs in the market when a good or service leads to greater market demand in relation to what is being produced. This particular scenario can develop when it is increased by the government, public spending or by the greater consumption needs of consumers.
In all countries there are economists and financial analysts who work in the public or private sector and are responsible for making a series of projections on the behavior of finance and the economy in order to make a series of decisions that are closely related to this activity and sector. When a level of inflation is detected, everyone prepares.
For this type of inflation to occur in an economy, it is necessary for the prices of goods and services to rise rapidly and on a large scale, directly and inversely affecting the growth that was developing in the economy. The immediate effect of this scenario is that unemployment figures skyrocket, causing a reduction in family income.
It is a type of inflation that directly affects the structure of the economy of a country, and is caused, among other things, because there is a level of instability in the income of capital in the market, by raising prices as part of the market competition or by the presence of competitive disloyalty activities between companies.
Inflation data are typified within this group, where figures of two to three digits are handled in a temporary measurement range of one year. When this level of inflation occurs, they generate direct effects on prices, increasing them on average in a range of 15 to 50 percent. This situation will cause the country that suffers from this type of inflation to have an economic recession.
When this scenario occurs, natural and legal persons generally manifest the behavior of resorting to exchange rates to buy dollars or euros (which are the most stable currencies), to have some control over the real value of prices in relation to the value nominal. This will promote stability in purchasing power.
In this case, it is classified as hyperinflation when costs increase rapidly up to a thousand percent annual growth. This situation will inevitably bring about a crisis in the country’s economy that presents this type of financial scenario that directly affects its role within the macroeconomy as well as in its own microeconomy.
The effects of this type of inflation turn out to be very negative, the impacts directly affect the value of the local currency, the levels of purchasing power capacity deficit are increased exponentially. All this scenario causes flight of capital and investments that further aggravate the situation of the country’s economy.
It is a likely scenario that occurs in an economy of countries where the prices of products or services and implicitly the costs of production, present a gradual rise, that is, they gradually raise costs. This gradual form of growth maintains stability in the economy and purchasing power.
One of the typical reactions that people make is that both individuals and legal entities execute purchase-sale contract operations where they put the capital they have as a guarantee for a long-term period. This is possible to do without putting said capital at risk, because they can generate projections that in theory are close to reality.
In fact, from the point of view of the history of the economy, it is typified as moderate inflation using figures that do not exceed two digits, that is, they are considered low when the percentage of inflation corresponds to a single digit, otherwise it will happen if handle decimal numbers in figures. That is the most common rule used by economists and financial analysts.
Rather than being the result of a lack of effectiveness in the projections of economic and/or financial analysts on the subject of inflation, this scenario occurs when events take place that are not within the reach of macroeconomic variables. It is generally due to the inability to distribute assets, capital and income.
In this case, the increase in the prices of goods and services for the consumer in a short-term period comes into play directly in the behavior of inflation. In this case, for its analysis and dynamics in the market, the prices related to energy products and food that have not been processed are not taken into consideration.