
Where Does The Origin Of Inflation Come From?
Inflation is an economic phenomenon that impacts our daily lives. Let’s look at the origins of inflation in simple terms. Imagine opening your wallet every day and finding RM10 in it. With a limited amount of money, you might not be too eager to spend. However, when suddenly there are ten thousand ringgit in your wallet, the urge to spend might increase. In the economy, some institutions can create money, including central banks and commercial banks.

Commercial banks can create money up to ten times the amount of funds deposited. This happens every time they grant loans to individuals or businesses. The more people take out loans, the more money is created in the economy. An excess of money in the economy encourages a tendency to spend. With this understanding, we see that central banks, like Bank Negara Malaysia, play a role in controlling inflation.

From a trader’s perspective, an increase in demand can lead to a rise in the price of goods. For example, if the initial price of a good is RM2 and it sells quickly, the trader might increase its price to RM3 because many are willing to buy it. However, this action can also cause unwanted inflation.
To tackle inflation, central banks use tools such as raising the Overnight Policy Rate (OPR). When the OPR is raised, loan interest also increases, reducing people’s interest in borrowing. This is one way to control the inflation rate. Therefore, inflation and its control are important aspects of the economy that the public needs to understand.