Desk Report,
What is inflation, why does it happen, how does it empty your pockets?
Have you ever noticed how the prices of goods are increasing? Let me give you an example—
In July 2021, the price of a kilogram of good quality rice was 58 to 65 taka. But today the price of that rice is 75 to 85 taka.
What is inflation, why does it happen, how does it empty your pockets?
It is not just about food. The price of everything has increased. The question is, what is happening then? Why are prices increasing? Why don’t the prices stay the same? Are all the sellers deliberately increasing the prices together?
Actually, there is a big reason behind this. And that is inflation. Many people are now familiar with this economic term. But do we really know why inflation happens and is it always a bad thing? Let us explain.
Inflation is actually a very simple thing. Inflation happens when the prices of goods increase over time. As a result, the value of money decreases. That is why rice or any other product now costs more than before. When inflation occurs, your money cannot buy the same things as before.
That story can be told here. Earlier, people used to go to the market with pocket money and bring bags full of money. Now, they have to bring bags full of money to the market.
Here is another example. In 1972, one kilogram of beef could be bought for five taka. Now, even a small bone cannot be bought for five taka. That is, the value of money is decreasing, everything seems more expensive than before.
But why does this happen?
Why does inflation happen
Inflation can happen for various reasons, but we will discuss the most common reasons.
1. Demand-pull inflation
This happens when many people want to buy a product, but the quantity of that product is low. Let’s say, generally people want to buy 1,000 kg of rice and farmers produce exactly 1,000 kg. That is, everything is going well. But suddenly, a flood or some other reason destroyed the rice crop. As a result, only 300 kg of rice remained. That is, the demand remains the same as before, but the supply or supply has decreased. As a result, people compete with each other to buy and the price increases. As a result, the price of one kilogram of rice was previously 20 taka, but now it is 25 taka. When people compete to buy a product, they push up the price—this is demand-pull inflation.
2. Cost-push inflation
This happens when the cost of making goods increases. Suppose, a rice seller sells 1 kg of rice for 30 taka. After buying rice, he has to fry the rice. But the rice crop has been destroyed in the flood. As a result, the rice seller also has to buy rice at a higher price. Earlier, it cost 20 taka per kg of rice, other expenses 5 taka, and profit 5 taka. Total 30 taka.
