Inflation and Deflation


Inflation is a term used to describe the state of the economy as a result of increases in the prices of goods and services, as well as a decrease in the purchasing power of money in circulation, which affects the business sector. Another definition of inflation is a rise in the amount of money in circulation, resulting in a loss of real currency value, which is compensated by an increase in the price of goods and services in the marketplaces.

Hyperinflation is a word used to indicate quick and excessive price increases, as well as an economy that is out of control. Although hyperinflation is an uncommon occurrence in modern economies, it has occurred in nations such as China, Germany, Russia, Hungary, and Argentina on multiple occasions throughout history. When prices grow by more than 50% each month over a period of time, it is called hyperinflation.

What factors contribute to inflation and hyperinflation?

Demand-pull inflation, cost-push inflation, and built-in inflation are the three basic factors of inflation. Demand-pull inflation occurs when there are insufficient items or services to meet the demand of people, this leads prices to rise. Cost-push inflation happens when the price of producing goods and services rises, causing firms to raise prices.

Finally, when employees want greater pay to catch up with increased living costs, leads to built-in inflation, often known as a “wage-price spiral.” As a result, firms boost their prices to cover growing wage expenses, resulting in a self-reinforcing cycle of wage and price rises.

Deflation in the inflation crisis

To help deflation, you can supply a source of profitability that, after all, costs, surpasses inflation levels in order to sustain and grow your wealth despite economic inflation. Naturally, the greater the inflation rate, the better. In other words, profitability is so important that you should raise your savings to ensure that you have enough money when you retire and that you are protected from inflation. But what are the solutions?  You can:

  • Invest in real estate is a great way to diversify your portfolio.
  • Deposit in a bank
  • Invest in gold through the financial markets

Current economic inflation

While the world struggles to recover from the effects of the Corona pandemic, inflation has engulfed one of the world’s largest economies, according to analysts the United States is experiencing a massive price increase, and this made international markets fear a forced recession and other economic crises. The United States’ inflation rate jumped dramatically reaching 6.2 per cent on an annual basis, the highest level last 30 years. What are the reasons for this crisis, as well as its global implications? In an interview with Al-Hurra, Dr Gregory Avtandilian, an analyst, professor, and lecturer at the American University in Washington, says: “There are various explanations, but the most prominent among them is “supply chains.”

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