Inflation is an increase in prices, expressed as a fall in buying power over time.

The rate of decline in buying power can be reflected in the average price increase of a basket of goods and services over a given period of time. The increase in prices is usually expressed as a percentage. A rise in prices implies that less of an asset is actually being bought than in previous periods. Inflation can be confused with deflation, which occurs when prices fall and buying power increases.

The purpose of inflation is to measure the overall effect of price changes for various goods and services. Inflation allows for a single value representation of the increase in the price level of goods and services in any economy over a given time period. Higher prices mean fewer goods and services are bought. Loss of purchasing power. The loss of buying power affects people's cost of living. This leads to slower economic growth.

To fight inflation, central banks take action to manage the money supply and credit to keep inflation within certain limits and ensure that the economy runs smoothly. Inflation can be measured in different ways, depending on the types of goods and services. Inflation is the opposite of deflation, which refers to a general fall in prices when its rate is below 0%.

What Are the Reasons of Inflation?

An increase in the money supply is considered to be the root of inflation. The money supply in a country can be increased by some methods by those who have authority over money. Some of these methods are as follows:

• Print more money and distribute it in the markets
• Legally devalue the currency through legal tenders
• Lending some new money through the banking system as reserve account credits by buying government bonds from secondary market banks

Due to these methods of increasing the money supply, money loses its buying power.

The reasons for changes in inflation are divided into three types. These types are as follows:

• Demand Inflation
• Cost Inflation
• Built-in Inflation

What Is Demand Inflation?

Demand inflation occurs when an increase in the supply of money and credit encourages the overall demand for goods and services to rise faster than the economy's productive capacity. This causes demand to increase and prices to rise.

More money leads to consumer sentiment. Consumer sentiment, high demand and a supply-demand gap cause prices to rise.

What Is Cost Inflation?

Cost inflation is an economic phenomenon that arises as a result of rising prices of inputs used in the production process. In particular, increases in the costs of goods and services lead to an increase in the production costs of products and an increase in consumer prices.

When the money supply increases, the amount of money in the economy increases and this leads to an increase in the demand for goods and services. This increase in demand raises the prices of goods and services and increases the costs of producers.

What Is Built-in Inflation?

Built-in inflation is related to people's expectation that current inflation rates will continue in the future. As the price of goods and services increases, people may expect a sustained increase in the future. Therefore, people may demand higher costs and wages to maintain their standard of living. Higher wages lead to higher costs of goods and services.

What Are the Types of Inflation?

Inflation has its own types. These types are as follows:

• Monetary Inflation
• Consumer Price Inflation
• Asset Inflation

What Is Monetary Inflation?

Monetary inflation is the expansion of the money supply and the amount of money in circulation. It refers to deposit accounts in banks used for trading and the general account at the central bank.

What Is Consumer Price Inflation?

Consumer price inflation is the result of rising prices. It is price inflation that has a direct impact on consumers. The price of goods and services increases.

What Is Asset Inflation?

Asset inflation refers to the increase in the price of any asset, be it stocks, cryptocurrencies, gold or real estate.

What Is the Relationship Between Inflation and Cryptocurrencies?

High inflation on fiat currencies causes fiat currencies to lose their value from time to time.

Some features of cryptocurrencies can help them resist inflation. Here are the cryptocurrency features that provide this resistance:

• Cryptocurrencies cannot be governed by state authority and are therefore not subject to political manipulation, such as being further printed.
• Cryptocurrencies are more convenient for storing and sending value.
• The fact that cryptocurrencies will not be created beyond a certain limit makes them resistant to inflation. Bitcoin, for instance, will not be worth more than 21 million. Halving and similar cryptocurrency features can avoid this inflation risk.

What Are the Advantages and Disadvantages of Inflation?

Some advantages of inflation realization are:

• For sellers, inflation leads to an increase in the sale value of assets.
• The optimal level of inflation encourages individuals to spend.

Some of the disadvantages of inflation are:

• It causes buyers to pay more for all inflation-affected goods and services.
• Inflation imposes higher prices on the economy.