Inflation

Inflation

Our current era is experiencing many waves of inflation, which directly affects the economy of any country. Inflation is defined as a continuous rise in the price level, and a price boom is not considered inflation unless it is accompanied by a continuous rise in prices. Inflation can be a rise in consumer prices, that is, an excessive rise in the prices of goods and services, or inflation can be a rise in income. Cash or an element of money income, such as wages or profits. Inflation may be caused by higher costs of production, such as higher oil prices, creating inflation called “cost inflation.”

Furthermore, inflation can be demand-induced, i.e. a sustained increase in aggregate demand due to an increase in the money supply or any other factor affecting aggregate demand. This leads to an increase in the general level of prices.

The effects of inflation have a negative impact on the purchasing power of the local currency and an individual's ability to make full use of his or her income. Managing inflation is an important economic policy challenge to maintain the stability of the economy and achieve a balance between supply, demand and costs.

Causes of inflation:

Inflation occurs as a result of various economic factors, and among the most prominent of these reasons are:

Demand inflation:

Demand inflation occurs as a result of a continuous increase in aggregate demand. This can be due to an increase in money supply or other factors that affect demand. This includes an interest rate cut, increased government spending, an increase in exports, and an increase in investment. This continuous increase in demand with constant aggregate supply leads to a continuous rise in the general level of prices and results in aggregate demand-induced inflation.

Cost inflation:

This type of inflation is caused by rising operating costs in industrial or non-industrial companies. A rise in the money wage rate and an increase in the prices of raw materials cause an increase in costs. When production costs rise, it reduces the amount of output a company is prepared to produce, leading to a decrease in aggregate supply and an increase in the general price level, resulting in inflation.

Increased costs negatively affect companies and factories, as rising prices of raw materials lead to an increase in costs, and this can lead to reducing production or laying off workers to reduce costs, resulting in an increase in the unemployment rate as a result of rising prices.

The following table shows the inflation rate in the Gulf countries and Egypt during the year 2022:

Country	Inflation rate
Kingdom of Saudi Arabia	3.10%
The United Arab Emirates	3.7%
Qatar	6.07%
Iraq	5.30%
Oman	2.36%
Kuwait	3.20%
Egypt	14.7%

The table shows inflation rates in different countries, and the State of Qatar is considered among the Gulf countries to have the highest inflation rate among the previous countries.