Dual inflation

economic-dictionary

Dual inflation is that generalized rise in prices that indexes more in non-tradable goods. This, above the rise of consumer goods on the market.

In other words, dual inflation is produced by a rise in the price of products that are not intended for final consumption.We refer, for example, to energy or fuels. Said rise in price may be due, among other possible factors, to lower efficiency in production processes, which is why supply falls.

It should be noted that inflation is an increase in the consumer price index (CPI) in a geographic space. This, within a certain period of time.

In this sense, it should be noted that a rise in the price of non-tradable goods may end up being transferred to a rise in consumer goods. This, because it increases the cost of production. For example, if the price of oil increases, the cost of industrial processes will generally rise.

Importance of inflation

Inflation is important to a country or market. This, because if the opposite scenario occurs, of deflation, consumption could fall, reducing the growth rate of the economy.

Therefore, the usual thing is that a moderate level of inflation is maintained. Thus, the corresponding central banks or monetary authorities are normally responsible for keeping the price rise within a certain range.

Although it is true that in this sense there are both defenders and critics of the existence of inflation.

Advantages and disadvantages of inflation

Among the advantages of inflation, they could highlight:

  • Encourage consumption: People prefer to consume today and not wait for tomorrow because prices could be higher. Hence, economic activity increases.
  • Companies increase their income: By charging a higher price for their goods or services, the value of the companies' sales rises.

However, inflation also has serious disadvantages:

  • Purchasing power decreases: If the price level increases, but wages do not do so, the person will be able to consume, on average, less goods and services than before.
  • Saving decreases: As we mentioned in the section on the advantages of inflation, this increases consumption. As a counterpart, it decreases the savings of families and the possibility of investment.

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