Understanding Inflation and Examples of Inflation

Understanding Inflation and Examples of Inflation – Inflation is an increase in prices of most goods and services that we commonly use daily such as food, clothing, housing, recreation, transportation, consumer staples, and others. The price increase referred to as inflation is a price increase that takes place continuously in a certain period. That means, consumers now have to spend more money to get the same amount of goods or services compared to last year or a few years ago.

Inflation can be found in everyday life, a simple example of inflation such as 1 kg rice which in 2010 was only valued around $ 2, – we have to buy at a price of around $ 4 in 2020. This means that the same amount of rice is now more expensive or higher valued than it was 10 years ago. The percentage increase in goods and services during a certain period is usually called the Inflation Rate.

And of course, this inflation rate is not only determined by one type of goods but is determined by several groups of goods such as foodstuffs, education, transportation, health, recreation, and so forth.

The indicator commonly used to measure inflation is the Consumer Price Index (CPI). The CPI is basically an index that calculates the average price change of a package of goods and services consumed by households in a certain period of time. In other words, the CPI measures changes in goods and services from a consumer perspective.

Understanding Inflation according to Expert Severity

To be more clear about this inflation, here are some definitions or understanding of inflation according to the experts.

  • Understanding Inflation according to Sukirno (2011: 165), Inflation is an increase in prices of goods that are general and continuous.
  • Understanding Inflation according to Julius (2011: 22), Inflation is the tendency of prices to increase continuously.
  • Understanding Inflation according to Murni (2013: 202), inflation is an event that shows an increase in the price level in general and takes place continuously.
  • Understanding Inflation according to M. Natsir (2014: 253), Inflation is a tendency to increase prices of goods and services in general and continuously.
  • Understanding Inflation according to the BI website (Bank Indonesia), inflation is defined as a price increase in general and continuously within a certain period. An increase in the price of one or two items alone cannot be called inflation unless the increase is widespread (or results in a price increase) in other goods.

Grouping Inflation

Quoted from the website of Bank Indonesia (BI), inflation measured by CPI in Indonesia is grouped into 7 expenditure groups (based on  the Classification of individual consumption by purpose  – COICOP), namely:

  1. Foodstuffs Group
  2. Processed Food, Beverage, Cigarettes and Tobacco Group
  3. Housing, Water, Electricity, Gas and Fuel Group
  4. Clothing group
  5. Health Group
  6. Education, Recreation and Sports Groups
  7. Transportation, Communication and Financial Services Group

Causes of Inflation

In general, there are two main causes of inflation, namely increasing demand or Demand-Pull Inflation and increasing production costs or Cost-push Inflation.

Rising Demand ( Demand-pull Inflation )

The most common is inflation due to increasing demand or in English is called Demand-pull Inflation. This Demand-pull inflation occurs when demand exceeds the supply of goods or services. Buyers really want the product so they are willing to pay a higher price.

Increased Production Costs ( Cost-push Inflation )

The second cause of inflation is due to increased production costs or in English is called Cost-push Inflation. Cost-push inflation is caused by rising production costs such as rising prices of raw materials and labor. Thus, producers need higher costs to produce goods and services. Cost-push inflation is also common due to depreciation in currency exchange rates and rising government taxes.

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