Answer Posted / gaurav sharma

There are many causes for inflation, depending on a number
of factors. For example, inflation can happen when
governments print an excess of money to deal with a crisis.
As a result, prices end up rising at an extremely high
speed to keep up with the currency surplus. This is called
the demand-pull, in which prices are forced upwards because
of a high demand.

Another common cause of inflation is a rise in production
costs, which leads to an increase in the price of the final
product. For example, if raw materials increase in price,
this leads to the cost of production increasing, which in
turn leads to the company increasing prices to maintain
steady profits. Rising labor costs can also lead to
inflation. As workers demand wage increases, companies
usually chose to pass on those costs to their customers.

Inflation can also be caused by international lending and
national debts. As nations borrow money, they have to deal
with interests, which in the end cause prices to rise as a
way of keeping up with their debts. A deep drop of the
exchange rate can also result in inflation, as governments
will have to deal with differences in the import/export
level.

Finally, inflation can be caused by federal taxes put on
consumer products such as cigarettes or fuel. As the taxes
rise, suppliers often pass on the burden to the consumer;
the catch, however, is that once prices have increased,
they rarely go back, even if the taxes are later reduced.
Wars are often cause for inflation, as governments must
both recoup the money spent and repay the funds borrowed
from the central bank. War often affects everything from
international trading to labor costs to product demand, so
in the end it always produces a rise in prices.

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