What exactly causes inflation

Consequences of inflation:It will cause a decrease in productive investment, which is not conducive to the long-term stable development of production, and undermine the normal progress of social reproduction, leading to the disorder of the production process, which will have a negative impact on society. Inflation disrupts the normal order of commodity circulation.

Excessively high inflation can form asset bubbles and induce financial crises.

Impact of inflation on financial activities:(1) Cause a large increase in capital occupation, thereby increasing the capital demand of enterprises.

2) Cause the profit of the enterprise to be inflated, resulting in the loss of enterprise funds due to profit distribution.

3) Cause profits to rise and increase the cost of equity capital of enterprises.

4) Cause a decline in valuable **** and increase the difficulty of financing enterprises.

5) Cause a shortage of funds and increase the financing difficulties of enterprises.

The causes of swelling can be summarized in the following three situations:

Demand-pulled. Demand-pull inflation, also known as excess demand inflation, refers to a sustained and significant increase in the general ** level caused by aggregate demand exceeding aggregate supply. This type of inflation is in turn figuratively described as "too much money chasing too little goods".

Cost push. Cost-push inflation, also known as supply inflation, refers to a sustained and significant increase in the general level caused by the increase in supply-side costs in the absence of excess demand.

Structural factors. Structural inflation refers to the persistence of the general level only due to changes in economic structural factors in the absence of demand pull and cost push.

However, because on the one hand, it is not easy for the modern social and economic structure to transfer the factors of production from backward sectors, declining sectors, and closed sectors to advanced sectors, emerging sectors, and open sectors, and on the other hand, backward sectors, declining sectors, and closed sectors require that they be on par with advanced sectors, emerging sectors, and open sectors in terms of wages and development, the result will be a general level.

Inflation, generally defined as: under the credit money system, the currency depreciation and price level caused by the amount of money in circulation exceeding the actual needs of the economy are comprehensive and continuous** - in more layman's terms: the price level in a given economy generally and continuously increases, resulting in a continuous decline in the purchasing power of money.

The three causes of inflation include: an increase in the amount of money, an increase in the cost of production, and an excessive increase in demand.

1. The amount of currency ** increases.

When the amount of money increases, the amount of money in the market increases, which leads to a decrease in the value of the currency, the price of goods, and thus inflation.

2. Production costs are rising.

When the cost of production rises, in order to maintain profits, enterprises will increase their products**, which will lead to prices**, causing inflation.

3. Excessive growth in demand.

When demand grows excessively, goods in the market are in short supply, which causes inflation. This situation usually occurs during economic boom periods, when people's consumption demand increases, and the production capacity of enterprises cannot keep up, resulting in price disadvantages.

The harms of inflation are as follows:

1. Currency depreciation.

2. Wealth redistribution.

Inflation leads to a redistribution of wealth because inflation makes assets ****, and those who hold assets benefit from it, while those who don't suffer losses.

3. Investment uncertainty.

Inflation can lead to investment uncertainty because it makes future benefits and costs uncertain, which can make it difficult for investors to make decisions.

4. Increase the debt burden.

5. Reduce consumption.

6. Increase production costs.

1. Resulting in the continuous growth of consumption level, currency depreciation, and reduction of consumption power;

2. Bank deposits decreased and capital outflow;

3. Improvement of employment opportunities;

4. China's soaring prices promote exports and curb imports;

5. Constant inflation will lead to chaos in the economic order.

1. Too much money supply: too much money supply corresponds to the fixed amount of products and labor service companies, resulting in currency prices and soaring prices;

2. Demand-pull: excessive growth in aggregate demand causes inflation, and too much money chases too little goods;

3. Cost increase: inflation caused by cost or production, as well as total cost increase caused by manufacturer's production cost;

4. Structural imbalance: inflation caused by the incompatibility and dislocation of income structure and economic structure;

5. Insufficient supply: that is, under the condition that the aggregate demand of the society remains unchanged, the relative shortage of the aggregate supply of the society leads to inflation;

6. Improper expectations: that is, in the case of continuous inflation, inflation is more serious due to the user's improper expectation of inflation (too pessimistic about the future inflation trend);

7. The system is not perfect.