Inflation categorized as the one of most familiar words in economics.

Inflation has
plunged countries into long periods of economics instability. Inflation was even declared as
Public Enemy No. 1 in 1974 at United State by President Gerald Ford. Inflation is the rate of
increase in prices over a given period of time. Inflation is typically a broad gauge, such as the
increase in the cost of living in a country or increase in prices. Generally, this phenomenon
occurs in developed countries and the cause of inflation is broadly identified as growth of
money supply. In contrast, inflation is not a purely monetary phenomenon at developing
countries. Furthermore, the inflation process oftenly dominated by the factors that typically
related to fiscal imbalances such as exchange rate depreciation arising from a balance of
payments crisis and higher money, however it can also be more narrowly calculated for certain
goods, such as food or public services like haircut/car wash for example. Whatever the context,
inflation represents how much more expensive the relevant set of goods and/or services has
become over a certain period, most commonly a year.

The phenomenon of high inflation are often the result of lax monetary policy. If the
money supply grows bigger relative than the size of an economy, the unit value of the currency
dwindles or in other words its the prices rise but at the same time purchasing power falls over.
So this causes the relationship between the size of the economy and the money supply is called
the quantity theory of money, and that is appertain as one of the oldest hypotheses in
economics. Emphasis on the supply or demand side of the economy can also be inflationary.
Many kinds of supply shocks that disrupt production, such as high oil prices, natural disasters
or raise production costs, be able to reduce overall supply and lead to “costpush” inflation, in
which the impetus for price increases oftenly comes from a disruption to supply. The demand
shocks such as when a central bank lowers interest rates or a government raises spending, also
the amount of stocks market rally or expansionary policies can temporarily boost overall
demand and economic growth. But if the increases of demand exceeds the economy’s
production capacity, then the resulting strain on resources will be reflected in “demand-pull”
inflation. The Policymakers must get the right balance when needed a solutions without
overstimulates the economy that causing inflation between elevating demand and growth.
Besides that, one of those who contributed to play the key role in determining inflation was
expectations. If firms nor people anticipating the higher prices, they will build various kinds of
expectations into wage negotiations and contractual price adjustments (such as automatic rent
increases).
 The inflation can be also contort purchasing power over time for payers of fixed interest
rates and recipients. For extent that households’ nominal income, which they get it in current
money, they are worse off because it doesn’t increase as much as prices and also they can afford
to purchase less. Maybe in other words, their purchasing power or real inflation adjusted
income falls cause real income is a proxy for the standard of living. When the real incomes are
rising, so is the standard of living and vice versa. Even though the high inflation hurting the
economics, falling prices nor deflation, it is not desirable either. If the prices are falling,
consumers delay making purchases if they can, anticipating lower prices in the future. This
means lessen economic activity, income generated by producers, and lower economic growth
for the economy.

All of these things depends on the causes of inflation also the right set of anti-inflation
policies those aimed at reducing inflation. Just in case whem the economy has overheated,
some central bankers have chosen with varying degrees of success, to compel monetary
discipline by fixing the exchange rate trying its currency to another currency, therefore its
monetary policy to that of the country to which it is linked. If the central banks are committed
to ensuring price stability it will be able to implement contractionary policies that rein in
aggregate demand, usually by raising interest rates. Nevertheless, when inflation is driven by
global rather than domestic developments, such policies may not help. In various kind of cases
the government may directly set prices because such administrative price-setting measures
usually result in the government’s accrual of large subsidy bills to compensate producers for
lost income. For influencing inflation expectations as an inflation-reduction tool, central
bankers must increasingly relying on their ability. The Policymakers announce their intention
to keep economic activity low temporarily to bring down inflation, hoping to influence
expectations and contracts’ built-in inflation component. The more credibility central banks
have, the greater the influence of their pronouncements on inflation expectations.
 DAFTAR PUSTAKA

Baumann, D., & McAllister, L. (2015). Inflation and string theory. Cambridge University
Press.
Gilchrist, S., Schoenle, R., Sim, J., & Zakrajšek, E. (2017). Inflation dynamics during the
financial crisis. American Economic Review, 107(3), 785-823.
Hansen, B. (2016). A Study in the Theory of Inflation. Routledge.

Malmendier, U., & Nagel, S. (2015). Learning from inflation experiences. The Quarterly
Journal of Economics, 131(1), 53-87.