The Various Effects of Inflation

Julio Herrera Velutini comes from a family that has been part of the banking industry in Venezuela since its inception more than a century ago. Banking professionals in Venezuela like Julio M. Herrera Velutini have faced challenges in recent years due to shifts in the value of Venezuela’s currency, the bolivar.

Inflation occurs when the price of goods and services in a country increases over time. Some amount of inflation typically occurs in most economies, though the rate of inflation varies from country to country. Most countries aim for an inflation rate of about two percent per year, though this is less common in developing nations than developed ones.

Three factors contribute to inflation: increases in demand for goods and services, increases in cost of production, and a surplus of money in the economy. Any of these factors can lead to a reduction in the value of a unit of currency.

Inflation affects individuals in different ways. Creditors typically lose out when a currency inflates, as the value of the loans they hold is reduced. People who save money or live on fixed incomes are also among those who can be harmed by inflation. Inflation that is higher than internationally typical, however, can harm the economy as a whole, as domestic products lag behind international counterparts.