How does inflation happen?

_{How does inflation happen?}

  Inflation has been described as a lot of money chasing very few commodities. Hence, the expansion of the money supply will inevitably lead to inflation.

   If you have paper fiat currency, both the government and the central bank can play a role in expanding the cash supply. In fact, most politicians want inflation, so we have it.

  _{You have inflation when the money supply grows faster than productivity.}

 _{There has been a sudden increase in disposable income.}

  _{There are many mechanisms by which this kind of thing happens. Most of the time, this is the result of increased employment, resulting in more income for people to spend.}

 _{Sometimes, it may be due to the government printing money to repay the loan or the banks lending more.}

 _{This increase in revenue leads to an increase in demand, resulting in higher prices.}

  _{Demand and Offer:-}

  _{Basically, inflation is a change in price, and we all know the price results from the equilibrium between demand and offer. So there are two basics:}

  _{Demand often, it comes from extra income. And in general, income also grows slowly. So higher income, higher demand, higher price.}

  _{Offer. It's not a volume effect, it's a direct price effect. Input prices increase. Partly due to demand factor (see point first), partly transfer to new goods, new input factors etc. But the margin is not infinite, so if the input prices increase, the output prices will eventually increase.}

  _{On a regular basis, this rising trend, known as inflation, gives us higher prices across the board.}

  _{This is not a completely bad thing. In a healthy economy, moderate inflation indicates normal wage growth and normal growth. The question is, what is the moderate inflation rate?}

  _{Second scene: money:-}

  _{Another view of inflation is based entirely on money. The price of goods depends not only on the offer and demand but also on the value of the money.}

  _{And the value of money may change over time. This is because it is legally determined, and the level has changed or due to a change in the exchange currency rate. Also, it causes changes in the internal value of money.}

 _{In modern economies, the value of the currency is no longer legally stable, so I will consider two more points:}

   _{In an open economy, prices may fluctuate due to the balance of trade and currency exchange rates. When your money is depreciated, you can buy fewer goods in other currencies.}

  _{This will increase the prices of imported goods and lead to inflation.}

   _{It is difficult to capture the intrinsic value of a currency. But central banks know one thing.}

  _{If there is more money, the value will be less. The more currency you make, the less value each unit has.}

  _{But, if you want prices to be stable, you need to create enough currency to allow exchange.}

  _{That is why inflation is a key question for central banks. By injecting more cash, they can help the economy, but also create a much higher inflation rate.}

 _{Quick end;-}

  _{Inflation is inevitable. It is a combination of all the above-mentioned elements. Inflation is systematic in a growing economy. However, it is partially regulated in monetary policy.}

  _{There is much more to this, but that's all you need to know to understand policy fundamentals.}