THE EFFECT OF INFLATION RATES ON ECONOMIC GROWTH IN INDONESIA

Abstract

This research aims to determine whether the inflation rate has an effect on economic growth and to determine the type, and relationship between inflation and economic growth, causal factors, impacts, and the influence of the inflation rate on economic growth in Indonesia. This research method uses qualitative methods sourced from literature studies such as journals, articles, books, theses, and others. Qualitative studies are carried out in natural environments that are new findings. Inflation is an increase in the prices of goods and services caused by an increase in demand that exceeds the supply of goods in the market. Where inflation and economic growth are related to each other, high inflation can slow economic growth, while low and stable inflation can encourage economic growth. Economic growth can be defined as the growth of economic activity that influences the development of products and services created by society as well as peaceful social improvement. The economy can be affected by downturns and reduced levels of government spending due to high inflation. If inflation cannot be controlled, the potential for economic growth in the long term will be worse. If inflation is not controlled, it will result in a decrease in productive investment, a reduction in exports, and an increase in imports. This condition will stop economic growth. In addition, inflation hurts society, individuals, and economic activities as a whole. Studies show that inflation affects economic growth significantly and negatively.