The inflation rate shows the percentage increase in prices in a certain period.
Inflation is the sustained rise in the prices of goods and services . A rate , on the other hand, is a coefficient that expresses the relationship between two magnitudes . Both concepts allow us to approach the notion of inflation rate , which reflects the percentage increase in prices in a certain time period .
For example: if a kilo of sugar costs x units of money in the month of January and, after a month, it doubles, the monthly inflation on that product was 100% (the product costs 100% more than during the previous month).
During a period of high inflation, since wages remain unchanged, money appears to have less value; In other words, the prices of basic consumer products (those that are essential for subsistence) skyrocket and people are forced to make adjustments in their monthly purchases, either by leaning towards lower quality brands or choosing to do without certain goods.
Why is the inflation rate growing?
There are various reasons for the emergence of inflation. Demand-pull inflation occurs when the productive sector fails to adapt its supply to general demand and, therefore, decides to raise prices .
Cost inflation , on the other hand, occurs when producers' costs increase (due to increased salaries, taxes or raw materials) and they pass these increases on to prices with the intention of maintaining profits.
Inflation known as self-constructed inflation appears when producers anticipate a potential price increase, with an adjustment to their current behavior.
As the inflation rate rises, money loses value.
Classification according to magnitude
There are different categories in which it is possible to classify inflation taking into account the magnitude of the increase:
* moderate inflation : this is the increase in prices that occurs slowly and progressively . In this case, prices usually maintain relative stability, which generates confidence in consumers, inclining them to deposit their savings in bank accounts, in the hope that the value of their money will not change over time. It is a subtle increase that, although it is perceived, causes many to accommodate and make decisions that they will regret when the situation worsens;
* rampant inflation : this occurs when prices increase by double or triple digit rates in an average period of one year. Needless to say, when a country suffers such a phenomenon, a series of important economic changes take place. In general, people seek to keep the money essential to subsistence and exchange the rest for some strong currency, such as the dollar or the euro. The more desperate the situation becomes, the more difficult it is to carry out this savings plan, given the excessive demand for foreign currency, and many turn to illegal exchange stands;
* hyperinflation : this is an abnormal and excessive case, which can reach an increase of 1000% per year. It is a situation that reveals a tremendous crisis in the economy of a country, since the loss of value of its money is combined with the decrease in purchasing power and a deep confusion is experienced, which leads many people to try to spend everything as possible before the currency loses its value absolutely. Among the reasons that lead a country to suffer this type of inflation are the financing of government expenses by issuing money in an uncontrolled manner, and the absence of an effective system for regulating income and expenditures.