What is inflation?Understanding inflation is the key factor that helps financial investors grasp the market quickly and effectively.
What is inflation? What does the law say about inflation?
Understand more about the definition of inflation through the useful information below. HVA.
What is inflation?
Inflation is known as the constant fixed price framework of goods and services. Due to fluctuations in the value of money that change over time, the value increases or decreases over time. When inflation occurs, the value of money spent on buying items increases, leading to changes in all markets.
Currently, inflation is divided into three levels.
- Inflation below 10% is natural inflation
- Inflation 10%- 100% is known as hyperinflation.
- What is hyperinflation? Is the inflation rate per 1000%
In fact, inflation only needs to occur at 5% or less to be considered stable. If inflation fluctuates too much or is high, it will affect the national and regional economies. From there, it will have a negative impact on the value of money, business activities and production of the people.
Laws regulating inflation
The inflation rate in Vietnam increases and decreases very frequently and lasts for many years. Therefore, legal documents regulating inflation have been created and regulated more strictly. Especially concepts related to inflation such as inflation index, inflation target, …
According to Article 3 of the 2020 Banking Law of the State of Vietnam. The inflation target is a decisive expression of the stability of the currency value. At the same time, it determines the implementation of measures and public services to achieve the set goals.
Annually, inflation targets will be decided and set by the National Assembly. Thanks to market impacts, reasonable indicators will be provided to the market. From there, following the consumption orientation will lead to appropriate prices in life. Market monitoring and strict policy implementation will prevent inflation from getting out of control.
Causes of inflation
So what causes inflation? Currently, some causes of inflation include:
Demand-pull inflation
Inflation often occurs due to the increase in the price of one commodity, which leads to the increase in other commodities. The increase in demand for some commodities in the market leads to the increase in the price of commodities. This leads to the increase in the price of other commodities and changes the operation of the monetary market.
This causes inflation due to the increase in money based on demand. This clearly shows the formation of demand-pull inflation. This is considered the most common cause of inflation according to statistics from the current economic market.
However, inflation due to demand-pull occurs regularly and will stop at a low percentage. Therefore, the formation of inflation from this cause does not bring high consequences. This also answers the question What is core inflation? Inflation is relatively easy to fix and is a regular occurrence in the market.
Inflation due to rising costs
In addition, the increase in costs from businesses is also one of the reasons for the increase in inflation. Specifically, costs that can increase and affect the market include: Raw material costs, taxes, labor costs, etc. Thanks to the increase in small costs, the total cost of production increases.
This is one of the reasons that leads to the increase in the price of finished products sold by businesses. This leads to an increase in the money formed in the buying and selling market. Therefore, inflation due to increased costs is formed and exists in the current economic market.
Structural inflation
The next cause of inflation cannot be ignored is structural inflation. Currently, effective business and high achievements bring many benefits to the market, improving the material life of workers.
However, on the contrary, if the business is not doing well but the payment process must follow the market. That leads to many problems for the payment business to keep up with the development of market operations.
Because of that, businesses are forced to increase the cost of finished products to ensure profits, which leads to the appearance of inflation. The phenomenon of inflation appearing as above is called structural inflation.
Inflation due to changes in demand
The next cause of inflation that investors need to know is inflation due to change. Inflation occurs when the demand for consumption and use of a certain item suddenly increases rapidly or decreases slowly. If there is a stable supply in the market and the price gradually increases over time, even though demand decreases, the price remains the same.
It can be seen that when demand increases, the price of goods increases, but when demand decreases, the price of goods still increases. From there, we can conclude that the general price still increases when demand increases and decreases suddenly. As a result, inflation appears and a new buying and selling market is formed, affecting the stability of the economy.
Exported inflation
In addition to the causes leading to What is moderate inflation? As above, export is also one of the reasons for inflation. Imagine if the amount of exported goods increases rapidly, leading to an increase in demand. Because the amount of goods for export is concentrated.
This leads to a sharp decrease in domestic supply and an increase in demand. The market is now volatile and supply and demand fluctuate accordingly. This leads to a clear phenomenon of domestic inflation during the time when exports increased sharply.
Imported inflation
Along with inflation, when the export volume increases, the volume of imported goods increases. When import costs increase due to taxes or world prices increase, import costs increase accordingly. This leads to an increase in the selling price of domestic goods and a change in the general price range of goods.
This creates a general market fluctuation leading to inflation appearing clearly, changing the market. Therefore, it is considered that imported inflation is a common situation and is directly affected by prices worldwide.
Monetary inflation
Through some points what is inflation example above The final cause of inflation is monetary inflation. Currently, in the market, inflation due to currency is a common and frequent inflation phenomenon. If the amount of money in the country increases due to many reasons such as: the State Bank collects money or suddenly releases money into the market, it will lead to a change in the value of domestic currency. From there, inflation occurs.
However, the state's increase or decrease in the amount of money is also one of the methods to help stabilize the market. Therefore, the monetary inflation that appears due to the state has a basis and the main purpose is to help promote the market. Market news about domestic monetary inflation is always updated and brought to investors. Therefore, domestic monetary inflation is not a negative phenomenon.
Refer to information about investment knowledge here >>> Financial investment
Conclude
After the article, understand more about What is inflation?? from HVA Investors can easily recognize market fluctuations. Thanks to that, they can plan their investments conveniently and quickly. Grasping inflation is also a factor that promotes the success of investors when they are sensitive to seize opportunities. Thanks to that, investments increase profits quickly and excellently.
