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Reference and Education

Causes of Inflation in Underdeveloped Countries 

In Underdeveloped Countries, there are a lot of things that you have to do. You will have to do a lot of work to improve your country. In the past, many people worked hard but they did not know what they could do to improve their life.

Inflation is one of the main causes of underdevelopment in underdeveloped countries. Now you must be wondering what is inflation and what are the causes behind it and how can countries cope with them. Then, you’re at the right this. By gathering UK assignment help reviews on economic growth of countries, this guide is conducted to give you a wider perspective of this issue.

What Is Inflation?

Inflation can be defined as the rise in prices of goods and services which result from the increase in the money supply. This is caused by an increase in demand for goods and services, which leads to an increase in prices.

It is a major concern for underdeveloped countries. Because it affects the lives of the people and their economic growth. Inflation is caused by many factors, including government policies, labor market conditions, and international economic crises. When inflation occurs, it makes people lose their money and they cannot buy food and other goods with this money (Roncaglia de Carvalho, Ribeiro and Marques, 2018).

Underdeveloped countries usually have weak currencies and large trade deficits. As a result, they have limited control over their money supply and hence they are susceptible to inflationary pressures.

The two main groups of inflation are cost-push and demand-pull factors.

  • Demand-pull: When there is a rise in demand for products and services, manufacturers are forced to increase prices to gain profits.
  • Cost-push: It happens when manufacturers increase their prices as a result of rising costs.

Causes of Inflation in Underdeveloped Countries

In a country that is still emerging from its underdeveloped status, inflation is inevitable. The reason for this is that the economy of such countries is still in its early stages.

The causes of inflation in underdeveloped countries are multiple and complex. However, some of the main reasons are discussed below:

1.      Government Policies

Government policies are one of the main causes of inflation in underdeveloped countries. The governments in these countries want to control prices but this often leads to higher prices for consumers. For example, when a country experiences drought and its citizens need more food or other products to survive, the government will impose higher tariffs on imports to protect local producers from foreign competition. This causes prices to increase because there is more demand and less supply available.

2.      Labor Market Conditions

The labor market conditions are also another cause of inflation in underdeveloped countries. If there are high unemployment rates then there will be high wages because workers have no choice but to accept whatever they can get. Workers may think that they cannot afford to work at lower wages so they accept what they can get even if it means accepting inflationary conditions as well as having less purchasing power each month after taxes are paid.

3.      Poor Management of Public Finances

Another cause of inflation is poor management of public finances. Many governments in underdeveloped countries have large debts and insufficient revenue streams to cover those debts through taxes or other means. When there is too much debt, interest rates must be increased to pay off the principal while still keeping the economy running smoothly. Higher interest rates can lead to more inflation as people expect prices to rise faster than they do when their money loses value due to inflation.

4.      Lack of Domestic Production

Underdeveloped countries also suffer from a lack of domestic production that would allow them to sell their goods at a higher price than competitors in developed countries can afford to pay for them. This results in lower profits for domestic manufacturers and businesses, thus contributing to higher inflation in these countries as well as elsewhere around the world.

5.      Stable Currency

Another main cause is the lack of a stable currency. A stable currency fosters economic growth by making it easier for businesses to plan, invest and expand. This makes underdeveloped countries more competitive in the global economy.

6.      Inflationary Excess Demand

It is caused by a combination of low income and high population growth. It increases the demand for goods, which results in higher prices.

7.      Inflationary Excess Supply

This type of inflation is caused by high population growth, poor infrastructure, high taxes, and other factors that lead to an increase in supply without an increase in demand. It results in lower prices.

8.      Changes in Exchange Rates

The economic value of a currency decreases when its value falls against other currencies. In other terms, the bulk of consumption items purchased in America is imported, which raises the cost of importation. Their price rises. The ensuing inflation is thought to be a cost-push type.

How Inflation Can Be Controlled In Underdeveloped Countries

The first step in controlling inflation is to determine the cause of inflation. Is it a result of a change in money supply, or is it due to an increase in nominal wages and aggregate demand?

  1. If the inflationary pressure results from a change in money supply, control can be achieved by increasing interest rates or decreasing cash reserves.
  2. If inflationary pressure comes from an increase in nominal wages, control can be achieved by decreasing labor costs through productivity gains.
  3. If it is due to aggregate demand then governments need to control inflation through monetary policy measures such as raising interest rates or changing exchange rates. Raising interest rates ensures that consumers have more money available for borrowing and paying back debts while changing exchange rates ensures that exports are competitive with imports.

Final Note

The economic development of a nation can be created or destroyed by inflation. Hyperinflation may occur when inflation exceeds 50% in a single month, although ideal inflation of 2% to 3% is seen as beneficial.

However, if you’re a student of economics and want to learn more about this topic for academic purposes you can opt for online educational assistance websites that provide custom assignment writing service to get in-depth research on your favorite topic! (BAW, 2018)


BAW.2018. Why We Are The Best Customize Writer Service Provider?. Online Available at: <> (Accessed: 19 July 2022).

Roncaglia de Carvalho, A., Ribeiro, R.S. and Marques, A.M., 2018. Economic development and inflation: a theoretical and empirical analysis. International Review of Applied Economics32(4), pp.546-565.



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