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