The encrypted economy cannot be understood if we don't know much about the general economy, we have to understand many of the terms that have to be found in all the articles on blockchain, bitcoin or encrypted economy, one of these terms is inflation.

Inflation is a quantitative measure of the rate at which the average level of a basket of selected goods and services in the economy increases over a period of time. It is often expressed as a percentage, and therefore inflation refers to a decrease in the purchasing power of a country's currency. Inflation can be compared to deflation, which occurs when the reverse of inflation, deflation is the fall in the price of goods.

Understanding inflation

As prices rise, money loses value because it buys fewer goods and services. This loss of purchasing power affects the overall cost of living for the general public, ultimately slowing economic growth. The consensus opinion of economists is that lasting inflation occurs when the growth of the money supply in a country exceeds economic growth.

To combat this, the country's competent financial authorities, such as the central bank, are taking the necessary steps to keep inflation within authorized limits and to keep the economy running smoothly.

Inflation is measured in different ways, depending on the types of goods and services considered, and is the opposite of deflation, which refers to a general fall in the prices of goods and services when the inflation rate drops below 0%.

Causes of inflation

High prices are the main cause of inflation, although this can be attributed to several factors. In the context of the causes, inflation is classified into three types: demand-induced inflation, high cost inflation and internal inflation.

• Demand inflation

Demand inflation occurs when the overall demand for goods and services in an economy increases faster than the productive capacity of the economy. It creates a gap between supply and demand with higher demand and lower supply, leading to higher prices. For example, when oil-producing countries decide to cut production, supply decreases. This leads to higher demand, which leads to higher prices and contributes to inflation.

In addition, the increase in money supply in the economy also leads to inflation. As more money becomes available to people, positive consumer sentiment increases spending. This increases demand and drives up prices. Monetary authorities can increase the money supply either by printing and giving more money to people, or by devaluing money. In all these cases of increased demand, money loses its purchasing power.

• Inflation caused by higher costs

The inflation of the costs of products or services is the result of an increase in prices of the production process. Examples include an increase in labor costs to make a good or service, or an increase in the cost of raw materials. These developments increase the cost of the final product or service and contribute to inflation.

• Internal inflation

Internal inflation is the third reason linked to the country's adaptation expectations. As the prices of goods and services rise, wages increase to keep the cost of living up. Their rising wages increase the cost of goods and services, and this wage price spiral continues, as one factor drives the other factor and vice versa.

The pros and cons of inflation

Inflation can be interpreted as a good thing or a bad thing, depending on how are moving and how quickly the change has occurred.

For example, people with tangible assets, such as assets or stored assets, may wish to see some inflation, as this increases the value of their assets which they can sell at a higher rate. However, buyers of these assets may not be satisfied with inflation because they will have to spend more money.

People with money may not like inflation either, as it erodes the value of their cash holdings. Inflation strengthens investments, whether by companies in projects or individuals in corporate stocks, as they expect better returns from inflation.

However, the optimal level of inflation is necessary to stimulate spending rather than to save. If the purchasing power of money remains the same over the years, there can be no difference between saving and spending. It can limit spending, which can hurt the economy as a whole, as the weak flow of funds will slow overall economic activity in the country. A balanced approach is necessary to keep the value of inflation within the optimal and desirable range.

A high, negative or uncertain value of inflation negatively affects the economy. This leads to market uncertainty, it prevents companies from making important investment decisions, it can lead to unemployment and increased hoarding as people flock to essentials as soon as fear of prices increases and that the practice leads to price increases, which can lead to an imbalance in international trade because prices are still uncertain and also affect exchange rates.