INFLATION

Inflation is the continued growth and general price of goods and services and productive factors in an economy over time. Other definitions explain how the persistent upward movement in the general level of prices and declining purchasing power of money.

Inflation is the continued growth and general price of goods and services and productive factors in an economy over time.

In practice, the evolution of inflation is measured by the change in the Consumer Price Index (CPI). To understand the phenomenon of inflation, one must distinguish between generalized price increases that occur once and forever, those price increases that are persistent over time. Within the latter can also make a distinction regarding the degree of magnification. There are countries where inflation is controlled under 10% annual average inflation that others do not exceed 20% annually and countries in which price growth has exceeded 100% annually. When the price variation reaches 50% a month is called hyperinflation.

CAUSES OF INFLATION

Inflation, as an economic phenomenon has causes and effects. The definition of its causes is not a simple matter because the general increase in prices often becomes a circular complex mechanism of which is not easy to determine the factors driving the price increase. This difficulty in determining the causes of inflation, has been the driving force behind a number of different test theoretical explanations of the inflationary processes. Explanatory theories generally fall into three categories. On one side are those who consider inflation as an explanation of excess aggregate demand, or demand-pull inflation. On the other hand, are those that aim to aggregate supply as a trigger for inflation, this is what is called cost-push inflation. Finally, there is a group of theorists who understand inflation as the result of social rigidities, this is what is called core inflation.

EFFECTS OF INFLATION ON THE ECONOMY OF A COUNTRY

The effects of inflation are to some extent as it can be expected or unexpected. Whatever form it takes inflation, entails costs and the higher the rate of price changes the higher the costs.
There are costs of holding money, so that operators spend more time discussing what to do with their money balances. The inflationary process involves, for dealers, real costs to update the prices. The steady increase in the general price level has redistributive effects in favor of debtors, in the distributive struggle employees and all those who depend on fixed nominal incomes will reduce their real income. Finally, as has been studied by Olivera-Tanzi, inflation also causes costs to the treasury due to the delay between the time of incurring the expenses and revenue collection.

INFLATION IN COLOMBIA

FINANCIAL GLOSSARY

Production
is the economic activity that provides value-added creation and supply of goods and services, ie, is the creation of products or services and at the same time, the creation of value.

Use value
The use value of an asset is determined by natural conditions, is the skill that has an object to satisfy a need.

Utility
Utility is the property which a thing or action has the status of utility value.

Fixed Assets
Permanent assets that are typically required for carrying out the ordinary course of business. They generally consist of machinery, equipment, buildings, land, etc.

Joint Action
Title value that represents the economic rights of an investor in a corporation through the capital. Each common share grants equal rights to all holders.

Trade Balance
State of the activity of international transactions in goods of a country - balance between exports and imports for a period of time which is usually a calendar year.

Portfolio
Pool of financial assets of a company or individual.

Fixed Cost
Cost does not vary with changes in the level of production.

Domestic Debt
Set of obligations held by the government that are denominated in local currency.

Duopoly
Industry where the supply of the good is produced by only two companies.

Financial expenses
Expenditure for the interests of financial obligations.

Indirect taxes

Taxes on the execution of transactions

Inflation
Sustained and widespread increase in price indices

Clearance
Completion of a business or project by selling all its assets and the cancellation of all debts. Giving due to a financial asset by converting it to cash, typically through sale.

Profit Margin:
Difference between the sale price and the cost of a product.

Microeconomics
Branch of economic theory is the study of the behavior of individual economic agents.

Rating
Value contained in the document at the time of issue or transaction

Liabilities
A firm's obligations to third parties.

Capital gain
Increased property value due to inflation or a higher level of demand.

Shelf Life
Expected duration of the operation of an asset.

Heritage
Real property of a company or individual, defined as the sum of all assets less the sum of all liabilities.