Why Commodity Prices Always Rise (Inflation Explained)

    See you all again Welcome to the money story article Have you ever wondered why the prices of commodities are rising?Remember elementary school? How much is a curbside meatball? Most of the time it's only 5,000 rupiah or even cheaper. In 2020, the price of meatballs can reach as high as $10,000 and reach $15,000-20,000 in Jakarta. The bus fare to my school was only 1,000 rupiah. It is now 3,500. As a result, the prices of goods and services are steadily rising. In fact, prices of staple foods such as rice continue to rise at the wholesale level. According to the Statistics Center, the average price of rice in January 2010 was 6,702 yen per kilogram.

Why Commodity Prices Always Rise (Inflation Explained)

    The average price of rice in January 2020 is IDR 12,343 per kg. The average price of wholesale rice has increased by about 85% per kilo over the last decade. what actually happened? Why do prices keep rising? Why has the price remained the same over the years? So, in this article, I would like to discuss the phenomenon of rising prices for goods and services that we experience every day. In economics, this phenomenon is called inflation. Inflation is often interpreted as the phenomenon of a gradual or gradual increase in the prices of goods and services that occurs continuously. From the point of view of price increases, why are prices going up? yes? Did the merchants make agreements to raise the prices of their goods?

    No, this economic phenomenon occurs naturally. This is because several factors change in the rotation of the economic wheel. This inflation, apart from being related to rising prices, can also be interpreted as the depreciation of the money we have. , is not the same as what you can buy for the same amount in 2020. Oh yeah, this inflation is usually offset by annual wage or employee salary increases.

    For example, Jakarta's minimum wage was just 100 million in 2010, but ten years later, in 2020, Jakarta's minimum wage was raised to 4.2 million per month. Now, many people misunderstand this by saying that the annual increase in goods reflects the economic downturn. Not really. As for inflation, not only Indonesia but also other countries are experiencing inflation. And we can say that this inflationary phenomenon is normal and widespread.

    In fact, even the most economically advanced countries such as Germany, the United States, Japan and Singapore are experiencing inflation. Inflation is usually expressed as a percentage. In Indonesia, inflation data are published by the Central Bureau of Statistics or BPS. As such, BPS monitors price movements for goods and services on a monthly basis. What we monitor starts with the price of basic necessities that everyone needs: housing, electricity, health education, transportation, fuel and recreation. Later, the BPS also processes the data until it is received. What is the inflation rate in Indonesia? So, as a society, you can check the inflation rate released by BPS on the website of the Central Statistics Office or the website of Bank Indonesia. For example, the inflation rate in 2019 was 2.72%. This means that the average price of goods and services increased by 2.72% in Indonesia in 2019. Inflation and price increases are not always caused by government policies or specific institutions. But it can also happen naturally. This process is unconsciously performed by all of us as economic agents. As a dealer, service provider and manufacturer, we play the role of retail sales force.

    Now let's talk about what causes inflation. In economics, the causes of inflation can be very complicated, but let's try. I will try to explain it as simply as possible. Here are four things that can cause inflation. The first is supply and demand. The second is rising production costs. The third is the circulation of money. And finally, importing goods. So let's start with the demand and supply factors. Demand is demand, supply is supply.

    This is a very classic economic principle and it happens all the time and everywhere. It's easy if you have a lot of items you want, but the price tends to be high because the quantity is limited. Conversely, if you have a lot of products but want a few of them, the price tends to go down. So what drives the demand and people's demand for goods and services?

    There are many factors, such as population growth, income growth, and taste changes. From food to makeup, accessories, and Korean fashion. Moving on to the next point, increasing production costs. So the things we use every day are made by companies and domestic industries. To buy production machinery, pay for labor, and get fuel.

    For example, the price of kerosene increased between 2013 and 2014. On June 22, 2013, the price of his petrol premium increased from 4,500 to 6,500. On November 18, 2014, the price of premium petrol was raised again to 8,500 per liter. The percentage of the price increase roughly corresponds to the price increase of premium gasoline. So you may be thinking that "only gas will go up". Don't get me wrong, kerosene plays a very important role in the economic cycle. Gasoline and diesel are drive chains for delivering goods. all over Indonesia. For example, imagine this. There is a bakery company whose logistics costs are rising due to soaring fuel costs, and the prices of bread ingredients such as flour and eggs are soaring. Rising fuel prices have forced bakery companies to increase distribution costs as well. That is, the cost of production for bakeries has increased. And finally, bakers increased the price of bread sold to consumers.

    The problem is that rising fuel prices aren't just affecting bakeries. This affects businesses large and small, cottage industries, commerce and society in general. Another example is labor costs. This really has to do with UMR. As the UMR increases, the company or business owner will have to spend on the budget to pay for the labor. Production costs increase in terms of labor force. And ultimately, companies will have to raise the prices of their products sold to the public.

    Perhaps this also answers the question why governments don't raise the UMR as high as possible so that workers can thrive. Well, one of the reasons

    A large and short-term increase in UMR will incur high production costs for wage-paying entrepreneurs. To raise the price of the goods they sell to the public. Ultimately, as wages rise, so do the prices of goods. Proceed to next point by money supply. Let me explain with an example first, right? Idul Fitri Employees usually get a THR when their vacation is approaching. it's simple. They get about 1x extra salary before vacation. Therefore, they automatically receive twice as much money for him as they would normally receive for the month. People's purchasing power increases when they have more money. People who couldn't afford pineapples and sheet cakes now can. Purchasing power has made it possible for people who never thought of buying gold for souvenirs at home to buy a few grams of gold. As it increases, so does the amount of demand for different types of commodities.

    How do traders typically react when a product sells? Yes, if a product sells, there are many buyers. They tend to raise prices to increase profits while their goods are on sale. What in the end? Yes, price increases affect inflation. Well, this is also evidenced by the Hari Raya inflation rate, which is generally higher than other months. People really have money, but Hari Raya tends to be more consuming. You see, countries generally trade with each other. The problem is that many factors can increase the price of imported goods. For example, because the country of origin of the product is experiencing high inflation. Or because of the new customs policy that there are additional tax exemptions, administration fees, etc. Well, if importers from Indonesia can only get their products at a higher price, these importers are more likely to sell to Indonesian consumers. will follow an increase in the selling price of goods to iPhone sales in Indonesia are high when comparing iPhone prices in other countries. This also applies to the import of industrial raw materials.

    Ultimately, this can have a cascading effect on the prices of final products in our country.In short, not only is inflation caused by domestic conditions and policies, but this inflation is also caused by foreign influences. There is a possibility. OK? OK, these are four factors that can cause inflation. Of course, these are not the only causes of inflation. There are still facts. I will discuss other factors on another occasion. OK, that's all I have to say. I hope this article is useful for all of us. See you in the next article. Staying on the article "Talking about money". Because money talks… …are endless! 

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