The Causes Of Inflation
d) Multi-causal Inflation
A combination of Cost Push, Demand Pull and Monetary Inflation in an economy. The chief cause of inflation in next year might not be the same as it is challenging to determine and improve.
(3) List and explain the causes of Inflation. (10 mrks)
Answer:
Inflation is the steady rise in the prices of goods and services in a country which is triggered by the devaluation of money.
According to experts, ″Inflation″ has many causes. Most will agree that inflation is due to either quality and/or quantity. The quality theory of inflation says that a person who earns money will be able to use that money to buy the good he wants. The quantity theory of inflation says that money should be viewed in how much of it is supplied
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The demand remains the same, but since there are fewer goods or services, the supplier can charge more per unit. However, this can only occur if demand for the end product or service is inelastic. That means there is a high demand for the product even if the price goes up.
Cost-push inflation occur under five special circumstances. First, cost-push inflation can be created by companies that achieve a monopoly over an industry. This has the same effect as reducing the supply, because the company controls the supply of that good or service.
Wage inflation is a second creator of cost-push inflation. This is when wage earners have the power to force through wage increases, which companies then pass through to consumers in higher prices. Natural disasters are a third catalyst for cost-push inflation. A growing problem will be cost-push inflation as a result of the depletion of natural resources. That leads to a fourth driver of cost-push inflation, government regulation and taxation. These regulations can reduce supplies of many other products. Taxes on cigarettes and alcohol were meant to lower demand for these unhealthy products. This may have happened, but more important it raised the price, creating inflation. A fifth, and more complicated, reason for cost-push inflation is a shift in exchange rates. Any country that allows the value of its currency to fall will experience higher import prices. That's because the foreign supplier does not want the value of its product to drop along with that of the currency. If demand is inelastic, it can raise the price and keeps it profit margin
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