“Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man.”
– Ronald Reagan
What is inflation? Inflation can be defined as an increased in price level of products and services over time. It is usually reflected in the form of percentage. High inflation is an indication of one country weakening currency. For example, let’s say you have IDR 500 in the year of 2000 and you hold that money in your wallet for years. The price of a glass of mineral water at that time is IDR 500, so you can buy it with your money. Eighteen years later, the price of a glass of mineral water has become IDR 800. That IDR 500 you kept in your pocket can’t buy that same product which you can buy 18 years before. Even though the amount of money remains the same, but the value has decreased by 37%
Based on its caused, inflation can be categorized into:
Inflation due to increase of demand only happen in some occasion. For example, during the beginning of academic year, the demand of books and uniforms are increased so the price of those things would be more expensive during that time. Other example is, during Ramadhan Period, demand of food, clothes, and transportation are relatively increased so the price will be triggered due to those increased in demand.
One of the examples is when fuel prices is increased then it means the production cost will increase as well. The producer would likely to burden those increased in the selling price. So, the price of goods will increase then trigger the inflation.
Inflation itself can be considered as something negative or positive depending on the situation. For example, if you want to sell a house, you most likely want a higher inflation because with higher inflation means the value of your house will increase when you sell it. On the other hand, those who want to buy houses might want the opposite thing like you want.
Inflation cause people’s living cost to increase. But it is still needed so that a country’s economy can run well. That’s why central bank has an important role to maintain the stability of inflation so it is still in the desired level. Too much inflation, negative, or tend to fluctuate could give negative impact to economy because those uncertainties might hold up companies to make decision for their investment which will lead to unemployment rate, economic stability, and exchange rate. That’s why central bank has the role to maintain inflation level of a country through monetary policy.
After taking into account all of those facts about inflation, you will get an insight about investment which can give you more return than the inflation level.