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How Prices be on the Rise: Understand What Inflation Is

Inflation is a general increase in the prices of goods and services over a period of time that is widespread and results in price increases in other goods.


This economic phenomenon is normal in any country and is controlled by the central bank so that it occurs at a reasonable level within the specified percentage.


Bank Indonesia (BI) itself sets the inflation target or target as follows.

Year

Target

Actual (year-on-year)

2021

3±1%​

​1,87%

2022

​​3±1%​

5,51%

2023

3±1%​

-

2024

​​2,5±1%​

-

Inflation illustration

2 Major Causes


1. Cost-Push


Cost-push inflation is caused by supply-side pressures or increased production and operational costs. For example, the rupiah depreciates against foreign currencies thereby increasing import costs and ultimately driving inflation.


Other factors also include an increase in the price of regulated commodities or a condition that causes disruption in the supply system, such as the case of the skyrocketing price of cooking oil in 2022 and the recent price of rice.


2. Demand-Pull


As opposed to cost-push, demand-pull inflation occurs due to demand-side pressures. The demand for goods and services is relatively greater than their availability. In other words, aggregate demand exceeds the capacity of the economy.


An example of demand-pull inflation is the scarcity and rising prices of masks at the beginning of the Covid-19 period.


Eroding Value of Money


Inflation then causes the value of money to fall and people's purchasing power to decline. The increase in income is often not proportional to the rate of inflation.


So, what are the right steps to maintain the value of money and stabilize purchasing power?


In Order to Inflation Doesn't Become a Problem


Apart from expecting control by the government, one way to deal with inflation is by investing.


Stocks are the investment instrument that has the highest return, which can reach 10-15% per year, exceeding BI's target and actual inflation.


How do we start investing in stocks that are healthy and safe?


Start Healthy Investment with KAF ETRADE!


✓ Convenient steps of opening a securities account

✓ Web and mobile-based online trading application

✓ Affordable trade transaction fees



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Disclaimer: The content is made for educational purposes, not a recommendation to buy or sell a particular stock. PT KAF Sekuritas Indonesia is licensed and supervised by the Financial Services Authority (OJK).



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