Inflation is an objective economic category arising from the circulation of money. This is from the
fact that money is just a kind of token of value that is released into circulation as a substitute for
money of sufficient value to perform the role of intermediaries. money itself has no intrinsic value,
only nominal value. Therefore, when there is an excess of money in circulation, people do not tend
to keep in their hands the depreciated coins and the excess will directly affect the production and
circulation of goods.
Many economists are looking for a correct definition for the term inflation, but in general, there is
not a complete consensus.
There is a classical view that inflation occurs when the amount of money in circulation exceeds the
gold reserves as a guarantee of the issuing bank. Specifically, people rely on the guaranteed rate of
money to see if there is inflation or not. For example, if the law stipulates that the minimum
guarantee rate of the currency is 40% when the rate falls below the legal level, the bank has overissued money.
Another view is that inflation is an imbalance between money and goods in the economy. It can be
summed up in Fisher's equation:
If the total quantity of money in circulation M increases while the total quantity of goods and
services exchanged holds Y, the average price level P increases. And if you add to that the speed of
money circulation V increases, then P increases very quickly. To overcome this situation, it is
necessary to take appropriate measures to re-establish the balance between money and goods in
the economy.
The above view helps us to understand the phenomenon of inflation but does not reveal the cause
of inflation.
There is another view that inflation is an increase in the prices of goods (consumption, means of
production, and labor power). Inflation occurs when the overall level of prices and costs increases.
The simultaneous increase in prices is just one of the manifestations of inflation.
From the above analysis, the concept of inflation can be given as follows: Inflation is the
phenomenon of money in circulation exceeding the need, causing them to depreciate, the prices of
most goods increase. simultaneously.
Inflation is characterized by: An excessive increase in the amount of money in circulation leading to a
currency devaluation and an increase in the general price level.