What is Inflation?

Inflation is always mentioned whenever we talk about cost of living, but what is it? And what are its underlying factors?

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Inflation is the increase of goods and services’ prices in a specific time period, and so it affects the purchasing power of the local currency. This means that as inflation rises, the local currency loses its purchasing power. So, the number of goods and services that the consumers can afford decreases.

 

Types of Inflation:

 

  1. Cost-push inflation: this type of inflation occurs due to the increase in cost of production or manufacturing of goods and services.

 

  1. Demand-pull inflation: this occurs whenever the demand increases for a specific type of product or service, so supply cannot keep up, which drives the price up.

 

  1. Built-in inflation: after prices increase, people start to demand an increase in salaries, which drives up the prices even more, so inflation becomes a part of the economic cycle.

 

Some people can benefit from inflation, and those are mainly people who own assets.

 

Are There Benefits to Inflation?

 

Some people can benefit from inflation, and those are mainly people who own assets. The reason they benefit from inflation is that it drives up the prices of their assets, and so they can sell them at a profit. This is a type of investment, and it’s one of the main sources of investment in Egypt.

 

People who don’t benefit at all from inflation are those who depend on cash completely in their day-to-day transactions. Due to the dip in the purchasing power of the local currency, they will be unable to afford some products and services.

 

However, inflation is a normal part of the economic cycle, and there are many factors that contribute to its rise and fall. The yearly increase in inflation helps the economy by encouraging people to invest and spend, rather than tuck away their money in the bank. 

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