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Why Do Prices Always Go Up? A Simple Explanation of Inflation

Understand why the cost of goods and services keeps rising, how inflation works, and what really drives this global economic phenomenon.

Have you noticed how prices of food, transportation, or even gadgets always seem to increase year after year? From a bowl of meatballs that used to cost 5,000 rupiah to today’s 20,000 rupiah in Jakarta, this phenomenon is something everyone experiences. The answer lies in inflation — a gradual, continuous rise in prices and the decline in the purchasing power of money.

What is Inflation?

In economics, inflation is defined as the sustained increase in the general price level of goods and services. Simply put, 100,000 rupiah today cannot buy the same amount of goods it could 10 years ago. This doesn’t mean the economy is failing—on the contrary, inflation is a normal and global phenomenon. Even advanced economies like the US, Germany, Japan, and Singapore experience it.

How Inflation is Measured

In Indonesia, the Badan Pusat Statistik (BPS) tracks inflation by monitoring the price movements of essentials such as food, housing, electricity, health, education, transportation, and fuel. The results are expressed as percentages. For example, in 2019, Indonesia’s inflation rate was 2.72%, meaning that overall prices increased by that percentage within the year.

Main Causes of Inflation

While inflation may sound complicated, it usually boils down to four major factors:

1. Demand and Supply

When demand for a product rises but supply remains limited, prices increase. Conversely, if supply is abundant but demand is weak, prices may drop. For example, during the K-wave boom, demand for Korean products like cosmetics and food skyrocketed, pushing prices higher.

2. Rising Production Costs

Every product requires raw materials, labor, and distribution. If production costs increase—whether due to fuel prices, higher wages, or raw material shortages—businesses usually pass the cost to consumers. For instance, when fuel prices rose in 2013 and 2014, the costs of distribution increased, forcing businesses to raise product prices.

3. Money Circulation

When more money is in circulation, people’s purchasing power increases. A common example is during festive seasons when employees receive bonuses or THR. With more money in hand, demand for goods rises, leading to price hikes. This explains why inflation rates are often higher around holidays like Eid.

4. Imported Goods

Global factors also play a role. If the price of imported goods or raw materials rises due to inflation in other countries, tariffs, or taxes, local prices in Indonesia also increase. This is why items like iPhones are more expensive in Indonesia compared to their country of origin.

Is Inflation Always Bad?

Not necessarily. A moderate inflation rate is considered a sign of a healthy economy. It usually goes hand-in-hand with wage growth, ensuring people still have purchasing power. Problems arise only when inflation is too high (hyperinflation) or too low (deflation).

“Inflation is less about things getting expensive, and more about money losing its value.”

Conclusion

Inflation is an inevitable part of the economy that affects everyone. By understanding its causes—demand and supply, production costs, money supply, and imports—we can make smarter financial decisions. The next time prices go up, you’ll know it’s not just about sellers raising prices, but a natural outcome of economic dynamics.

What’s your personal experience with rising prices? Share your thoughts in the comments, and don’t forget to share this article with friends who want to better understand inflation!

Label:

Finance

References

• Video: Kenapa Harga Barang Selalu Naik? (Penjelasan Inflasi)
• Channel: Ngomongin Uang
• Link to original source