HERE’S WHAT NO ONE TELLS YOU ABOUT CONTROLLING INFLATION

3 min readOct 10, 2020

Inflation refers to a price rise in most goods and services of daily use such as food, clothing, housing, recreation, transport, and consumer staples etc. Inflation calculates the overall price in a basket of commodities and services over time.

There are 3 types of inflation: Demand-pull inflation, Cost-push inflation, and Built-in inflation. The main causes of inflation are excess aggregate demand (AD) (fast economic growth) or cost-push factors which are higher wages and higher oil prices.

INFLATION CONTROL POLICIES:

1. MONETARY POLICY:

The aim of monetary policy is to reduce the money supply with an economy by lowering bond prices and increasing interest rates. This scenario makes prices lower and inflation control.

2. CONTROL OF MONEY SUPPLY:

Through Open Market Operation (OMO), Central banks affect the quantity of money in circulation by buying or selling government securities.

3. SUPPLY SIDE POLICIES:

Supply-side policies are the government's attempts to increase production efficiency in the economy. If this becomes successful, they shift aggregate supply (AS) to the right which makes higher economic growth in the future. For example, state spending on transport. Education and communication.

4. FISCAL POLICY:

Fiscal policy is the state changing tax and spending levels to influence the level of Aggregate Demand. The government can increase tax and reduce government spending. This makes inflation under control.