What is Inflation in under 3 Minutes
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Inflation is when prices on normal goods and services move higher over time. A common tool used to track inflation is the CPI or Consumer Price Index.
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Inflation is a term that is often heard in discussions surrounding the economy and financial markets. But what exactly is inflation? In simple terms, inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
Let’s break it down further. Imagine you have $100 today and you can buy a certain amount of groceries with it. But a year from now, due to inflation, the same amount of groceries will cost you $110. This means that your $100 has lost some of its purchasing power. Inflation erodes the value of money over time.
Inflation can occur due to various factors, such as an increase in production costs, excessive demand, or changes in government policies. When production costs rise, companies may pass on these increased costs to consumers in the form of higher prices. Similarly, if demand for goods or services exceeds supply, prices are likely to rise as well.
It is important to understand that not all price increases qualify as inflation. Some price fluctuations can be temporary or limited to certain goods or services. Inflation refers specifically to a sustained increase in the overall price level of goods and services in an economy over a period of time.
Governments and central banks closely monitor inflation rates to maintain stability in the economy. They aim to keep inflation within a target range to ensure that prices do not rise too quickly or too slowly. High inflation can be detrimental to an economy as it erodes purchasing power, making it more challenging for individuals and businesses to plan for the future. On the other hand, low inflation or deflation can also create challenges, such as discouraging spending and investment.
To measure inflation, economists use various indices, the most commonly known being the Consumer Price Index (CPI). The CPI tracks the changes in the average prices of a basket of goods and services commonly consumed by households. By monitoring this index, policymakers can gauge the impact of inflation on consumers and adjust their monetary policies accordingly.
Inflation impacts individuals and businesses in several ways. On one hand, workers may demand higher wages to compensate for the rising cost of living. Companies may face higher input costs, affecting their profitability and potential investment decisions. Savers may see the value of their money erode over time unless they earn a return at least equivalent to the inflation rate. Overall, inflation is an important economic indicator that influences the decisions of individuals, businesses, and policymakers.
In conclusion, inflation is the rate at which prices for goods and services rise, reducing purchasing power. It is a reflection of the economy’s overall price levels and affects individuals, businesses, and government policies. By monitoring and managing inflation, authorities strive to maintain economic stability and ensure a healthy and balanced economy.
Good video, thanks
I´m from Argentina. Inflation is one of the worst things a society can live. Argentina: 60% inflation.
Does inflation mean that investors should look into investing when inflation rates are low so that they can purchase more stocks etc. with what they have? And if inflation is at 4% for example, does this mean that you should look for investment returns of over 4% annually in order to counter the 4% inflation rate? E.G. does a 6% annual dividend payment with inflation at 4% mean a 2% actual gain?
so according to the chart prices can go back to normal once they increase?
So, if savings loose money, you need to find an interest bearing checking account, use credit cards with interest back and pay off total amount each month, just to not loose money. If you are smart, because most people in retail investor platforms loose all their money, the stats are scary; it would be best to thank Jack Bogle for Vanguard and invest in etf's and play the business cycle, after keeping an emergency fund with no debt.
My dad onece told me what it was like during an inflation. You go to the store to buy 4 eggs that cost for instance 2$, but by the time you reach the store they cost 20$.
Two important omissions: 1. Inflation is essential monetary policy to stimulate the economy as it forces investment. In a deflating currency people stop investing as their money will appreciate in value with less risk just sitting in the bank. Secondly, when a government prints more money and spends it they have taxed you invisibly. They have decreased the % of all the money you have and increased the % they have, effectively moving wealth from you to them as the money represents a fixed amount of wealth. In the end like all things, moderation is key.
Wait, wasn't inflation in germany caused by printing money to pay the debt?
Turning this to the US, how would increasing the minimum wage affect inflation?
Why is deflation bad for the economy?
No, inflation is an increase in the supply of money in circulation. A general increase in prices is a symptom of inflation, not an example of it. Inflation is only desirable to politicians who can boast about their records when GDP increases. But an increase in GDP is not a valid measure of prosperity. Quality of life is the best measure of prosperity, and that can hardly be quantified, which is why it's considered irrelevant.
A good one.
I request you to if you could make an eloborated one
Thnq sir for your kind information !!
thanks a lot for awesome videos
Very nicely explained…can u explain deflation and other related terms?