Inflation

In economics, inflation is a process of rising prices in general and continuous (continuous) associated with the market mechanism that can be caused by various factors, among others, private consumption increased, excess liquidity in the market that triggered the consumption or even speculation , to include also due to launch the lack of distribution of goods. In other words, inflation is also a process of declining currency value continuously. Inflation is the process of an event, rather than the high-low price level. That is, the higher price level which is considered not necessarily indicate inflation. Inflation is an indicator to see the level of change and is considered to occur if the price increase takes place continuously and mutually-influencing effects. The term inflation is also used to mean an increase in money supply which is sometimes seen as the cause of rising prices. There are many ways to measure the rate of inflation, the two most commonly used are the CPI and the GDP deflator.

Types of Inflation

In economics, inflation can be divided into several types in particular grouping, and grouping to be used will be very depends on the objectives to be achieved.

 Types of inflation:

1. According to the degree

• Mild inflation below 10% (single digit) 

• Inflation was 10% - 30%.

• High inflation of 30% - 100%. 

• Hyperinflasion, above 100%.

The inflation rate is not an absolute standard that can indicate the severity of the impact of inflation for the economy in a certain areas, because it depends on how many sections and Which social groups affected (who suffered) from inflation is going on.

2. According to Causes

• Demand pull inflation, inflation is caused by too strong increase in aggregate demand of the commodities community outcome production in the goods market. As a result, will attract (pull) the demand curve aggregate to the right above, resulting in excess demand, which is inflationary gap. And in case this kind of inflation, rising prices of goods usually will always be accompanied by an increase in output (real GNP) by assumption when the economy has yet to reach full-employment conditions. Understanding the increase in aggregate demand is often interpreted differently by the economic experts. Moneterist Group considers aggregate demand experienced increase as a result of the expansion of the money supply in masyarakat.Inflasi in Indonesia: Causes and Sources of control (Adwin S. Atmadja. Meanwhile, according to the class of Keynesian aggregate demand may rise caused by increased spending on consumption; investment; government expenditures, or net exports, although there is not an expansion in the money circulated.

• Cost push inflation, inflation is due to shifting of aggregate supply curve to the left top. The factors that cause the aggregate supply curve shift is increasing the price of factors of production (both originating from domestic and from abroad) in the factor markets, thereby causing the commodity price rise in commodities markets. In case of cost push inflation price increases often followed by a business downturn.

3. According Originally

• Domestic inflation, ie inflation is entirely caused by faulty management of the economy both in the real sector or in the monetary sector in the country by economic actors and the public. 
• Imported inflation, inflation is caused by an increase commodity prices abroad (in foreign countries who have a relationship trade with the country concerned). This inflation can only occur in countries that follow the open economy system (open economy system). And, inflation can be 'contagious' either through prices of imported goods and price of export goods.

Regardless of the groupings are, in fact inflation that occurred in a country are very rare (if not virtually

none) are caused by one type / kind of inflation, but often because combination of several types of inflation. This is because there are no factors economy and economic actors who actually have a relationship independent in a system of the country's economy. Example: imported inflation is often followed by a cost push inflation, domestic inflation followed

with the demand pull inflation, etc..

Sources of Inflation in Indonesia

If we analyze further, there are several key factors that become cause of inflation in Indonesia, namely:

1. The money supply

2. Government Budget Deficit

3. Factors in Aggregate Supply and Foreign Affairs

Some control inflation made in Indonesia, namely:

a. Improving the Food Supply

b. Reduce Budget Deficit

c. Foreign Exchange Reserves Increase

d. Improving and Increasing the Aggregate Supply Side Capabilities

Inflation also gives positive and negative impacts, among others:

Workers with fixed salaries are very disadvantaged in the presence of Inflation. Inflation has both positive and negative effects, depending on whether or not severe inflation. If inflation is mild, it has a positive influence in the sense that can stimulate the economy better, which is increasing the national income and make people eager to work, save and hold investment. Conversely, in times of severe inflation, which in the event of uncontrolled inflation (hyperinflation), state of the economy became chaotic and the perceived sluggish economy. People become excited about working, saving, or investments and production because prices are rising rapidly. The recipients of fixed incomes such as public servants or private employees and the workers will also be overwhelmed bore and offset the price so that their lives become increasingly degenerate and collapsed from time to time.

For communities that have a fixed income, inflation is very detrimental. We take the example of a retired civil servant in 1990. In 1990, his pension is enough to make ends meet, but in the year 2003-or thirteen years later, the purchasing power of money may be only a half. That is, retirement is no longer enough money to make ends meet. Conversely, people who rely on income based benefits, such as employers, are not harmed by inflation. So is the case with employees who work in firms with payroll following the inflation rate.

Inflation also causes people reluctant to save because of the currency goes down. Indeed, savings earn interest, but if the interest rate above inflation, the value of money is still declining. When people are reluctant to save money, business and investment to flourish. Because, to grow the business needs of banks obtained funds from private savings.

For people who borrow money from the bank (debtor), inflation is beneficial, because at the time of payment of debts to creditors, the value of money is lower than at the time of borrowing. Instead, the lender or the lenders will lose money because the value of money return is lower than at the time of borrowing.

For manufacturers, inflation can be advantageous if the income is higher than the increase in production costs. When this occurs, manufacturers will be forced to double its production (usually occurs in large employers). However, when inflation led to rising production costs and eventually harm the producers, the producers are reluctant to continue production. Manufacturers can stop production for a while. In fact, if not able to keep pace with inflation, the business may be insolvent manufacturers (usually occurs in small businesses).

In general, inflation can result in reduced investment in a country, pushing up interest rates, encouraging speculative investments, the failure of development, economic instability, balance of payments deficits, and declining living standards and welfare of the community.