It knows what the Inflation is
It knows what the Inflation is
The inflation can be defined as a process of continuous, substantial and widespread increase of the price of the goods and services, causing an economic imbalance. It means an increase in the cost of living and a loss of the purchasing power. In simpler words the persons with the money of his income can buy less and less things due to the inflationary process, that is to say, for the general increase in the level of the prices.
Causes of the inflation
The causes of the inflation can be great and take control in them of multiple factors. There exist many theories that try to explain these causes. The most well-known are:
Demand inflation: They put the emphasis of the explanation of the inflation on the increase of the demand. If there is increase of the demand and goods and sufficient services do not exist to attend of form balanced to this demand, there will only be goods for some and this causes tension that ends, in a widespread increase of the prices. It would be based on this idea: Since there are few goods that there acquire those that could give more money for them.
In general one speaks about this understood aggregate demand like the entire expense of the familiar consumption, of the public expenditure, dedicated to the investment and the clear exports. The same way as the prices increase, the expense will be minor, since with the same money quantity less goods and services can be obtained. Also this causes other consequences, since if the price of the goods and services is excessively increasing, these will be less competitive on the international markets, with what it diminishes the clear exterior demand. So that these harmful messes do not exist, it is necessary to find a balance between the general level of prices and the level of aggregate demand.
There are two currents that try to explain the causes of the inflation of demand: that of the monetarists and that of the Keynesian ones. The above mentioned tell that the excessive increase of the demand, that is to say, that one that does not come accompanied from a sufficient quantity of goods and services to supply it is because the sum of the expense generated by the familiar economies, the expense in investment of the companies and the public expenditure that the government starts exceeds the production capacity of the country.
Another explanatory current of the inflation of demand would be that of the monetarists; culprits do not look for these in the economic agents but they point out that the inflation for demand is produced by the excessive money quantity in circulation. There can be an increase of the available money accompanied by a revaluation of the goods and services in consonance with the available capital rise, but if this increase of the money in circulation does not come accompanied from the suitable revaluation of the goods, he will get ready of a lot of money or if it is preferred of major liquidity to be able to spend, this causes excesses in the expenses and increases in the demand of goods and services without being able to be attended by the productive capacity of the country, again, we meet that only goods will exist for a part of the demand, as there is not for all, they pay those who have more money, what it goes over to an increase of the prices.
Inflation for costs: In this case what can happen is that the companies need more cardinal to cover expenses. If there exists an increase of the payrolls of the personnel or they raise the prices of the prime matters from which it prepares his products the company, to compensate these expenses, it can increase the price to which these products will go out to the sale. In this case a spiral is generated, since those who need to buy these products also will increase his sale prices. Widespread consequence: a general increase of the prices.
It is necessary to bear in mind that any economic factor that gets dearer excessively will be able to lead others to the same way originating a chain reaction in which it will be difficult to establish exactly which have been the specific causes and/or in that it forms or proportion they have intervened in the inflationary process.
Effects of the inflation
The effects of the inflation are diverse. The inflation existence is considered to be reasonable in the general economies of the countries, the problem exists when it increases this one disproportionately and is out of the forecast of the government. An enormous inflation takes the loss of purchasing power as a principal effect on the part of the consumers, as the prices increase, with the same money quantity less goods and services can be acquired. That's why it is necessary that the wage rises keep consonance with the inflation or with the IPC (prices index to the consumption), but without excelling itself because if we would not meet the inflation for costs, in which the businessmen to compensate an excessive increase of the wages, increase the price to the sale of his products excessively, producing to him the mentioned spiral of widespread increase of prices.
Another effect is the decrease of the saving: if the prices rise, and it does not go over in order month, because there is no balance adapted between inflation and wages, it is necessary to come to the free money or to save less.
Measures that take against the inflation.
To reduce the money quantity in circulation: This can drive easily to freezing in the salaries of the workpeople and minor public investments.
To increase the interest rates. This drives to the saving and to request less personal loans because the interests to be paid for the given money increase, with what also there diminishes the money that exists in circulation. It is necessary to bear in mind that when the European Central Bank raises the interest rate, means that it raises the price to which it gives the money to the banks. The banking institutions obviously also will rise (if they have not already raised it, being far-sighted) the interest rate to which they give themselves money between themselves, who is the one that the Euribor marks. The clients who are going to request personal loans will see as they apply a higher interest to them, and the same way it happens with the mortgages to variable interest that they have employed or that they are going to hire.
Since the inflation measures itself.
To measure the inflation one resorts to prices indexes, that is to say, we need to have a number that indicates us the average growth of the goods and services during a certain time period.
The Index of Prices to the Consumption (IPC) that measures the level of the prices of the goods and services that are acquired by the consumers is used like meter of the inflation. The set of the products which prices are studied shapes the called basket or basket. It is a question of products that the persons consume of regular form and his change is studied with regard to another previous sample. His publication is monthly.
This indicator is used like measurement of the inflation, because, on having measured the change that there have had the prices of the goods and services, they allow to know the profit or loss of purchasing power on the part of the consumers.
Across the INE (National Institute of Statistics) we can obtain the information of the annual change of the IPC, managing to prepare this way a graph that shows us the evolution of the inflation. (Annual change from 2006).
The inflation lowered in July, 2007 2,2 % although the Government pointed out that he was waiting for a rise in the following months. It is necessary to bear in mind that it is a historical fact since it is the lowest inflation valuation from March, 2004 that was located in 2,1 %. This low inflation valuation was due to the fact that the IPC lowered in July 0,7 % reducing this way two tenths the interannual inflation. This turned out to be a very positive fact because it was bringing Spain over at the European convergence levels.
The inflation reached in September, 2007, an annual valuation of 2,7 %, the maximum level until this month in 2007. It is a clear sign of sudden change of tendency. The principal cause is necessary to look in the rise of the oil and the excessive increase of prices of basic food, like the milk, for the bread, milk derivatives and cereals.
The inflation reaches an annual valuation in October, 2007 of 3,6 %, a monthly change of a 1,3 %. The interannual valuation goes on from 2,7 % to 3,6 % increasing nine tenths. The increase of the IPC in October has taken as prime movers, the increases in dressed and wearing shoes, that 9 % raised; education 2,4 %, (it is necessary to bear in mind that coincides with the beginning of the course) and the increase of 1,9 % of the food and not alcoholic drinks, for the strong increases of basic food like the milk and milk derivatives, the bread and the chicken.