Inflation: Definition, Components, Levels and Methods of Measurement

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Inflation Definition:

In general, inflation can be interpreted as an increase in the price level of goods and services in general and continuously for a certain time. According to experts some understanding of inflation:

A. According Nopirin (1987:25)

The process of rising general prices of goods continuously during certain periods of.

2. According to Samuelson and Nordhaus (1998: 578-603)

Inflation is expressed as a general price increase. So the inflation rate is the rate of general price changes that can be expressed by the following formula:

Rate of inflation (year t) = Price level (year t) - price level (year tl): Price level (year tl)

Inflation component

There are three components that must be met before you can say there has been inflation, Prathama and Mandala (2001:203)

A. The price increase

The price of a commodity is said to be higher up if the price darpada previous period.

2. General

The increase in the price of a commodity can not be said to inflation if the increase does not lead to general price rises.

3. Ongoing

Increase in the price of a general nature will also not raise inflation, if there is a moment, because it's inflation calculations performed within the period of a minimum monthly

Inflation Rate

Conditions of inflation according to Samuelson (1998:581), based on the nature of inflation is divided into three sections:

1) {Creeping Creeping Inflation)

The inflation rate is low (less than 10% per year), the price increase is slow with a small percentage as well as the relatively long period of time.

2) Inflation medium {Galloping Inflation)

Characterized by substantial price increases and sometimes running in a relatively short time and have the properties of acceleration prices arrinya week / month is higher than the week / month and so on.

3) High {Hyper Inflation Inflation)

The most severe inflation with rising prices dtandai to 5 or 6 times and the value of money declined sharply. This situation usually arises when the government runs a budget deficit.

Inflation Measurement Method

A kenaiikan in inflation rates can be measured using the price index. There are some price index that can be used to measure the rate of inflation (Nopirin, 1987:25), among others:

a) ConsumerPriceIndex (CPI)

Index used to measure the costs or expenses in the household buy some goods for the purposes of life's needs:

CPI = (Cost of marketbasket ingiven year: Cost of marketbasket in base year) x 100%

b) Manufacturer PriceIndex known Whosale Price Index

Index which is focused on wholesale trade as the price of raw materials (raw material), raw materials or intermediate goods. PPI index is in line with the CPI index.

c) GNP Deflator

GNP deflator is an index of different types of CPI and PPI index, where the index covers the amount of goods and services included in the count of GNP, so that there are more than two index above:

GNP Deflator = (Nominal GNP: Real GNP) x 100%

Factors - factors that affect inflation

According to Samuelson and Nordhaus (1998:587), there are several factors that cause inflation:

a. Inflation DemandPull

Arise when aggregate demand is increasing faster than the economy's productive potential, pull up prices to balance supply and aggregate pennintaan.

b. Cost Push Inflation Inflation or Supply Shock

Inflation caused by an increase in costs during periods of high unemployment and the use of resources that are less effective.

While the factors that cause inflation is not only influenced by the Demand Pull and Cost Push Inflation Inflation but is also influenced by:

a) Domestic Inflation

The rate of inflation that occurred since the price increases caused by the

common in the country.

b) ImportedInflation

The rate of inflation that occurred since due to the rising prices of goods

general import