The Silent, Hidden Threat Responsible for a Higher Cost of Living: Inflation

Published: 2021-06-17 08:30:39
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Category: Economy

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Inflation has got serious and damaging social and economic consequences. In this paper, we will consider inflation as a major economic issue affecting many nations. Inflation according to the economic theory is the global increase in the general price level. Inflation causes the cost of living to increase which is a result of many different factors. There are two different types of inflation common in many countries; demand -pull inflation and cost-push inflation. To explain on this, we will analyze a newspaper article about inflation in Egypt.
Article analysis
On February 12, 2017, Egypt Finance Minister, El-Gary, announced that inflation in Egypt might peek soon by the end of the first quarter of the year. It is after policy makers in Egypt estimated the prices of commodities to rise after the increase of the fuel prices in the country. The prices are expected to rise after the country`s currency control were abandoned some time back in November hindering the country from receiving $12billion loan, International Monetary Fund Loan. The inflation is resulting from some supply shock different from the normal demand-driven inflation. (“Surging Egypt Inflation May Soon Peak, Finance Minister Says,” 2017).In 3rd of November, the central bank had removed all the exchange rate restrictions in the country and later raising the rate by 300 basis point. The pound has lost 50% of its value, and by Monday, February 13, 2017, the pound was trading at 17.5 per dollar increasing the chances of inflation in the country.
Changes to be made in the national budget
The economic issue discussed in the above article is inflation. Inflation in many countries will result in a lot of economics problems as a result of the increase in prices of commodities. Inflation in many circumstances will be divided into two major categories, demand- pull, and cost push inflation. Demand-pull inflation is a type of inflation occurring in situations where the aggregate demand in the country will increase at a faster rate compared to that of the aggregate supply. An Increase in demand for commodities will then result in pushing up of prices by the firms. Cost push inflation, on the other hand, will occur when there is a general rise of raw materials in the country or higher taxes. Cost push inflation will cause the aggregate supply of a country to shift to the left. (Hansen, 2016).
As discussed earlier, among the primary cause of inflation is an increase in demand for commodities (demand-pull inflation).One main cause of this type of inflation is budget deficit which has got numerous effects to the economy. The budget deficit will lead to lower taxes and increase in aggregate demand of commodities which later causes higher inflation and real GDP. Aggregate demand in the country will occur when the government`s spending is greater than the tax revenues which increase the national debts. If the deficits increase to an unsustainable level, interest rates in the country may also increase. (Khan, 2014).
To reduce the budget deficit and the inflation level, the following changes are necessary for the country. First, the government should cut down its spending. The government, in this case, should evaluate its different departments and identify the unnecessary spending. Reducing the government spending will help to reduce the budget deficit in the country. The other strategy that can be taken in the country is increasing on taxes. Higher taxes will increase the revenue of the country and this help to reduce the budget deficit. The increase in taxes will also cut down the level spending in the country.
The best strategy that can be taken in the country to reduce the level of budget deficit in the country is promoting economic growth. An increase in the economic growth in the country will increase the tax revenue without necessarily raising the level of taxes.
Amendments to the Constitution and federal budget
The federal budget together with the central bank will focus on low inflation. If the inflation of the country rises above a certain target, the government will use some economic policies such as the monetary policy that will reduce the inflation rate. The monetary policy is one of the amendments in the country that will help in lowering the inflation rate in the country. The policy is important because it will help in increasing the cost of borrowing in the country and discourages spending thus lowering the economic growth and inflation in the country.
Historical event
In 2007 the highest inflation rate in the USA after a period 17 years occurred. The inflation was as a result of the increase in the cost of energy and food. Inflation in this year made the consumer prices to rise by 4.1% for the whole of 2007.Prices of both food and energy rose affecting the economy of the country. Inflation during this period affected the buying power of the consumer’s.With the low income and increases in prices of commodities, consumers could not afford to buy many commodities. (Phillips & Nugent, 2014).
Impact on my daily life
Inflation has got a lot of impact in my daily life. As it has already been discussed inflation will lead to the general increase in the prices of products in the market which include the labor cost and the prices of all consumer goods. For those individuals whose income do not mostly keep pace with the rate of inflation then the impact will be a bit higher. Inflation will affect my ability to pay for the basic household expenses. (Ito & Kaihatsu,2016).
The other effect of inflation in my life is based on my ability to pay for living expenses. With high inflation rates in the country paying for basic living expenses like food and housing will be a bit difficult because of the low income.The other effect is life/work balance. With the high cost of inflation in the country, I will have to work longer hours so that I can take more additional jobs. The cost of living will rise and thus the need to work more hours to have enough money to sustain my needs. Finally, increase in inflation in the country will affect my education. With the increase in the cost of services and products, it will become difficult to raise school fees and at the same time pay for the basic living expenses. Inflation might, therefore, lead to school dropout mostly among those children from low-income families. In conclusion, with the numerous effects of inflation, the government should take serious measures to prevent and reduce it. (Ito & Kaihatsu, 2016).

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