Inflation: The Battle For Survival

'Inflation', the term we often see in the news (written in bold red letters), is one of the most serious topic to talk about. It had impacted the lives of humans over generations and has recently created a great buzz among people worldwide. So, what is inflation and how is it affecting people?

Inflation is the rate at which the general level of prices for goods and services is increasing, and, as a result, the purchasing power of money is decreasing. In other words, when inflation is high, the number of products our money can buy is less than before. Inflation has been having an impact on the economy since a long time, dating back to times when gold or silver were used for purchasing goods. It is also quite familiar to most of us since childhood because of the stories our parents told us. For instance, the stories involving the price of rice which increased from 10 taka per kg in Bangladesh to 80 taka per kg over the last 20-25 years is widely heard.

Inflation is calculated using the Consumer Price Index (CPI). It is calculated by tracking the price changes of a fixed number of goods over time.

Factors leading to inflation

Some of the factors that lead to inflation, include: 

1. Exchange rates
   When a country's currency loses value compared to another country's currency, the price of imported goods increases, leading to inflation. 
   
   
2. Disasters
   Natural disasters, wars and other events can cause disruptions in the supply chain and lead to shortages in goods and services. This can result in inflation as businesses try to meet the demand.
   
   
3. Increase in money supply
   An increase in money supply, such as via printing more currency, can lead to the prices of products being increased as there is more money available for the same amount of products.
   
   
4. Increase in demand
   If the demand for goods increase, the prices for those goods might increase as businesses try to fulfill the demand. This is called demand-pull inflation.
   
   
5. Increase in production costs
   Prices of goods and services might increase due to the increase in costs of energy, labor and raw materials. Businesses will try to improve the costs of products to maintain high profits. This is known as cost-push inflation.
   
   
6. Decreased supply of goods
   
   When supplies of goods and services decrease, the price of those increase leading to    high inflation. For example, the decrease in supply of petrol in recent times have led 
   to the increase in prices of the fuel.

 

Effects of inflation

Low inflation can have positive effects: boosting economic growth, keeping deflation under control, lower debt service costs and sometimes reduce unemployment. However, inflation is considered a negative phenomenon worldwide and it results in negative effects in the lives of people and the economy.

1. Decreased purchasing power
   Inflation leads to the reduction in purchasing power of money. Due to inflation, money loses some value over time which means fewer goods can be purchased with the same money.
   
   
2. Reduced standard of living
   Due to lower purchasing power, people who earn less are finding it difficult to maintain a standard lifestyle. They are left with little to no money to spend for entertainment after household costs.
   
   
3. Lower investments
   People are less likely to invest money on things that might lose value over time due to inflation.
   
   
4. Uncertainty
   Uncertainty over how inflation will play out in the future, business and organizations may be left out with uncertain financial decisions.
   
   
5. Redistribution of wealth
   People with assets like houses, cars, investments, etc. can benefit from inflation due to their assets gaining value. In contrast, people without them are in deep trouble as inflation is likely to increase rent, price of cars, etc.
   
   
6. Higher interest rates
   The government can deal with inflation by increasing interest rate on currency. This can be quite problematic for those planning to start business or buy a house as they have to pay more in interest.
   
   

Condition of Bangladesh

High inflation have hit hurt in Bangladesh recently, and it has disrupted the lives of the citizens. People who do low wage jobs like serving at restaurants, rickshaw pullers, and many other, are finding it hard to make ends meet. They barely have any money left for entertainment or other purposes after spending on rents, utilities and food. In addition, some find it difficult to even afford good food with increase in price of chicken, eggs, vegetables, etc. 'Pangash' fish ,which was a common food for many households due to its low price, have become out of reach for many families nowadays.

Even businesses have been hurt by high inflation with garments factories being the main victims. Due to inflation, all over the world, people are spending less on clothes and other accessories. Before inflation, if they bought 5-6 T-shirts per month, that has decreased to 1 or 2. This has led to fewer orders from foreign buyers, reducing the production of the business, eventually leading to lower profits.

In conclusion, inflation is a serious matter to think about and fight as a unit. There are many ways a nation can deal with inflation such as introducing monetary policy, fiscal policy, supply-side policies, wage controls, exchange rate policies, and price controls. Overall, managing inflation is a complex and important task for policymakers, as it affects the overall health of the economy and the well being of individuals and households. By carefully balancing the benefits and costs of various strategies like Switzerland did to prevent high rise in inflation, policymakers can work to promote stable and sustainable economic growth while minimizing the negative effects of inflation.