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Every year, thousands of young people come to Yogyakarta to study. Many people after graduating from university decide to stay in the city for job opportunities.
As a result, dormitory rental prices in small towns This is rising steadily every year. The rise in dormitory rents is one example. demand-pull inflation.
Definition of Demand-Pull Inflation
demand pulls inflation is the increase in commodity prices caused by the high demand for these goods and services. This can happen because the supply of these commodities is limited. while demand continues to increase
According to Keynes This type of inflation usually occurs due to an increase. gross domestic product Also known as the product of the nation GDP growth Good companies are often marked by the number of employees they need. As a result, many people receive a salary or income. This increases the purchasing power of the people as well.
For example, in the old days, their parents couldn’t go to university. However, with Indonesia’s steadily improving economic growth, many young people are now pursuing bachelor’s degrees. In a sense, this shows that the quality of education. of Indonesian people is getting better and better but vice versa This indirectly increases the cost of education and ancillary services as well.
Demand-Pull Inflation Good or Bad for the Economy?
Despite starting with good economic growth But this economic phenomenon still needs to be preserved. This is because raising prices that are too high can depress people’s purchasing power, which will gradually negatively affect the country’s economy.
Let’s go back to the tuition example above. The increase in higher education expenditures may be due to increased public demand for education. or per capita income Parents) It is not impossible that many Indonesians decide not to go to university.
Causes of Demand-Pull Inflation
Demand-driven inflation can occur because of:
1. Good economic growth
When the economy is good, people will be more confident in spending money, including if they need to use credit. As a result, the demand for goods from the public will increase and the price of goods will rise.
2. Increased exports
An increase in exports is a sign that the country’s economy is doing well. If exports increase The income of companies doing export business will be higher. Therefore, the purchasing power of those directly involved in the export industry will also increase.
3. Increased government spending
Government spending is one tool. fiscal policy that the government uses to drive the economy This government expenditure includes civil servant salaries, ASN salaries, community scholarships. Infrastructure repair or development projects, etc.
Therefore, if government spending increases It is likely that people’s purchasing power will increase as well. Therefore, people will buy more products. For example, the government has increased the budget for the Bidik Misi scholarship which will result in more young people dare to pursue higher education.
4. Inflation Expectations
inflation forecast It can also cause prices for goods and services to rise, for example, when inflation is expected to rise. Many people will buy stocks. Because these financial instruments are considered to have higher returns than inflation. Theoretically, it would make the composite stock price index (IHSG) higher.
5. Increased money supply
One of the monetary policy tools often used to improve economic conditions is lowering benchmark interest rates and banking. The hope is that more people will use bank loans. so that the turnover amount will increase
So how does the increased money supply cause inflation? For example, lowering mortgage interest rates encourages people to take mortgages. This results in higher home prices as it becomes easier to get a mortgage.
Demand-Pull Inflation Example
In addition to the above examples of higher education costs and dormitory rents, Other Examples of inflation caused by high demand can also be found in the labor market for technology-related positions such as full stack developerData Science and more
In addition to the growth of the digital economy in Indonesia The company also needs workers who are capable of the above-mentioned fields. in fact Labor supply in this field is very limited. This is because lessons and practices for this field of knowledge are not taught in schools or colleges. As a result, the wages of workers in this field are quite high. in fact For new graduates, it can go up to IDR 5,000,000 per month.
Demand-Push Inflation vs. Cost-Push Inflation
In addition to the cause of the increase in the number of products needed Inflation can also be caused by rising production costs. Inflation caused by this factor is called Cost-Pushing Inflation.
For example, the price of fried food has increased from Rp. 500 per grain to Rp. 1,000 per grain due to higher fuel and cooking oil prices. another example The cost of a Spotify or Netflix subscription goes up due to an increase in employee payroll costs or the regional minimum wage (UMR).
Inflation is often caused by demand for pull and driving costs at that time. For example, the salary example for the IT staff above Due to the scarce supply, the salary of IT workers has increased (demand for pull). The high salaries of IT workers will increase the company’s production costs. Therefore, the company has to pay higher prices for goods and services with customers.
whatever the cause Inflation is an economic indicator that the government must control. The government’s job is to identify the cause of price increases so that appropriate economic policies can be issued.
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