Have you heard about terms like Inflation or Hyperinflation? Well these are some general terms in Economics related to Monetary Policy. Inflation is the increased level of price of goods in an economy. Hyperinflation is also a term of inflation but in this issue price rises higher than inflation. It is an extreme form of inflation. If you want to know inflation more easily let’s look into an example:
Suppose you bought a shirt in 2020 for 250 Taka. But you are buying the same shirt in 2025 for 350 taka. That means the price level has increased. And it is happening because of Inflation.
So what do you think? Inflation is curse or a blessing for a society? From my above discussion you can think If the price rises I have to spend more I have to buy goods at a higher price than before. That means you can think Inflation is a curse. But it is not like that actually. Inflation can be both a curse and a blessing. But it has more negative impacts than positive ones.
Let’s know how can be Inflation is a curse for a country:
Decreased Purchasing Power: Inflation decreases people’s purchasing power. It means people can purchase less with the same amount of money over the time. Low-Income households suffer so much when Inflation occurs. Because the supply of money in the economy rises rapidly but the value also falls rapidly. So, people are fair to consume more in that time.
Economic Instability: Inflation leads to economic instability of a country. Because it creates a high supply of money with no value. In that time, an economy can have a sea of money but they are useless. Other countries’ money rates become so high against inflation. So, the economy falls in danger. The price of goods rises to an excessive level.
Recently In 2022, We saw Sri-Lanka faced the wave of Inflation. Inflation Rate was about 73% in Sri-Lanka at that time. And the country faced a high economic crisis due to Inflation.
So, it is clear that high rate inflation is a curse for a country. But the Mild Inflation can be a blessing for a country also. How? Let’s know:
Reduce Unemployment: According to Economist Phillips, Unemployment decreases when Inflation rises. He described it in a curve known as “Phillips Curve” and showed the negative relation between Inflation & Unemployment. In inflation, the supply of money rises so a company can recruit more employees. Because the price of goods were so high at that time. So they want to produce more goods and increase supply to earn more money. As they recruit people the unemployment becomes lower.
Encouraging Spending: Mild Inflation sometimes encourages people to spend more. Because prices can rise more in any time. So why do people save money if they cannot spend it well in the future? That’s why in an inflationary period people spend more or invest more as prices can rise.
Mild Inflation can be a blessing for a country but it is for a very short period. If prices rise in excess, Inflation becomes a curse for a country. It hampers both the economy and people’s living standard. Countries like Sri-Lanka, Zimbabwe, Venezuela are the best example of how dangerous inflation can be. Mild Inflation can be acceptable but the hyperinflation is worse for a country. So to reduce Inflation a government can control their money supply and strictly regulate their monetary policy.
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Writer
Prottoy Kanti Das
Intern, Content Writing Department,
YSSE