There are several causes of inflation
namely:
1.
Excessive money
supply caused by ineffective monetary and fiscal policy.
2.
Fall in the
supply of goods and services especially agricultural product causing in demand
and price as well
3.
Budget deficit of
government expenditure programmes is major causes of inflation in developing
nations.
4.
Too much
importation of goods and services can cause inflation especially in developing
nations
5.
an increase in
population can put more pressure on the little goods and service thereby price
will rise.
6.
The activities of
middlemen in the distribution of goods and services can also cause severe
inflation in the economy.
7.
Monopolist prices
with respect to production, importation and distribution of certain essential
commodities can causes inflation.
8.
increase in
salaries and wages and competitive attempts by various economic and social
groups to increase their share of the “national” cake’ cause inflation.
Theoretically
increase in demand and a decline in supply causes inflation.
Akpakpan
(1991), Okowa (1995) Maro (1996) and
Gbosi (1993) all offer similar arguments on the theorized causes of inflation
when inflation is attributed to a general excess demand in the system. It is
tagged” demand pull inflation”. Here inflation occurs as a result of demand for
goods and services exceeding the supply of goods and services at the existing
prices.
Inflation
is said to be “cost push” when it arises from the supply or cost side of the
economics system. This type of inflation can be brought about by:
a.
Higher price
incurred by monopolist or oligopolistic firms; this is termed “Profit Push”.
b.
Higher wages
secured by unions; this is termed “wage Push”.
Profit bush inflation is said to occur where firms
raise price level more than enough to offset any cost increase. This increases;
cost of living for workers, forces them to ask for more pay. More pay for
workers increase cost of production. This in turn increases price and the
spiral continues.
Wage –push inflation is said to occur where trade
unions have successfully push wage increases beyond the rate of increase in
labour productivity. Going by the quantity theory of money’ approach, Akpakpan
(1991) and Gbosi (1993) argue that increase in money supply can be a cause of
proportionate price increase. This inflation occurs and continues as long as
money supply is expanding.
Another theory that explains the cause of inflation is
the “sector shift theory”. Because aggregate demand is not constant, as
consumers tend to change their taste and preferences; the demand for certain
goods will increase. Gbosi declares that according to the sector shift theorists,
in order to increase their profit margins, firms will raise product prices.
This prices increase is subsequently shifted to all sectors of the economy.