In an economy, inflation is the most common phenomena and is an important part of study in economics. We should know the term inflation if we want to have a standard analysis of current economy. The main objective of discussing the meaning of inflation is only to make everyone clear about it so that there may not be any confusions and tensions for those readers who are not familiar with the precise terms used in economics.
Many people have conventional belief that inflation means just the increase in price of goods and services but it is more broader term than we used to think about it. There are many conditions in order to happen an inflation. Increase in price of goods and services is not inflation but it is price hike.
Inflation in my words is the state in which there is increase in general price level which results in decrease in the value of money and economic units i.e. the consumers/peoples are compelled to buy goods and services in relatively high price compared to the past. It means each unit of money can purchase few amount of goods and services and purchasing capacity or power of money decreases. I want to make it clear through real life example of my own experience. When I went to the market before a year for buying a jacket, its price tag was 30$ and I bought it. But now after a year, I went to market with my friends and saw that the same jacket costs 32$ which is the effect of inflation as the central bank had increased its money supply to the public which resulted in the same jacket to cost 2$ more than before. There are so many cases like this which we can refer through our experiences.
Inflation is continuous rise in the general price level not the individual price and the supply of goods and services is low with respect to its demand and its purely monetary phenomenon as it is dependent upon the supply of money.
Different economists had given their different view towards inflation. Classical economists, neo-classical and Modern also known as Keynesian supporters defined inflation differently but shared same idea that it results in high amount of money chases few amounts of goods.
Inflation has many pros and cons. Everything has to be done in certain limit and same case applies to inflation in an economy. Inflation of 2% for developed countries and 5% for developing countries is regarded as appreciable as it promotes business activities and the private sectors remains in profit which results in further economic growth. When private sectors who are guided by profit motive; and expects profits and positive return in any kind of investment, it will invest more resulting in more amount of income to the economic units and more amount of consumption which creates a cycle and this process leads towards economic growth of a state and an economy becomes progressive.
On the other hand, if the rate of inflation is very high than desired than it creates economic depression which have been experienced by the whole world during the great depressions after the world war i.e. during 1930's which resulted in global poverty, unemployment, destruction conflicts which is discussed in brief as its causes, effects and controlling measures.
Inflation should not be taken as an economic evil because Moderate rate of Inflation leads towards progressive economy. Therefore Inflation with moderate rate is desirable but inflation which a state cannot absorb or in other words a state cannot absorb is unwanted. I also used to think inflation as economic evil but after many studies and knowledge about it, I concluded that inflation is also necessary for an economy.
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