Inflation is the rate at which the general level of prices for goods and services is rising, and, then purchasing power falling over a period of time. When price level rises, dollar buys fewer goods and services. Therefore, inflation results in loss of value of money.
Inflation is divided into two categories Cost-push and Demand pull inflation:
Cost-push inflation means that prices have been hiked up by increases in costs of any of the four factors of production such as (labor, capital, land or entrepreneurship) when companies are already running at maximum production capability. With higher production costs and productivity at it maximum, companies cannot maintain profits by producing the same amounts of goods and services. As a consequence, the increased costs are passed on to customers, causing a rise in the overall price level (inflation).
Demand-pull inflation occurs when there is an increase in collective demand, categorized by the four sections of the macro economy: governments, households, businesses and foreign buyers. When these four sectors at the same time want to purchase more output than suppliers can produce, buyers compete to acquire limited amounts of goods and services. Buyers then bid prices up, again and again, causing inflation.
Trinidad and Tobago is affected by Cost-push inflation. Inflation in Trinidad and Tobago is the result of an increase in prices on the most basic commodities (food, water etc.) because of the instability of the worldwide