May 24, 2024

What is Inflation?

Have you been to the store lately and noticed the prices of food and other products going up? The price of eggs have doubled compared to last year; in some states even tripled. Maybe you also questioned why the price of gas is rising? This is caused by inflation. Inflation is the increase in prices over a given period of time. Some causes of inflation are increased government spending, increased money supply, and workers bargaining for higher wages.

For example a store paying $12 an hour are more likely to have higher priced products than a store paying $9 an hour. Labor shortages, which are driving wages higher, is creating higher inflation. Inflation is on the rise across global economies. Food and energy prices hitting record highs. Some negative effects of it can be households lose the ability to buy things when the prices of items they buy such as food, utilities and gasoline increase. Also it hurts the growth of stocks and bonds. Research has shown that Americans have went on a spending spree last month going to restaurant’s and buying cars. Spending too much money can fuel inflation by reducing the growth rate of money demand.

When inflation is rising, your paycheck won’t buy as much this year as it did last year. It affects costs and your standard living. Did you know it actually hurts the lower incomes but actually enriches the higher incomes? It also can negatively affects your debt. There is a possibility of “Hyperinflation” that’s a rare and disastrous scenario. All together it can affect taxes, government spending, programs and more.

Although inflation is ultimately a bad thing. It can be good for producers. For example it helps entrepreneurs get to invest in productive activities. There is different types of inflation. Demand pull inflation is when the supplies cannot meet growing demand , prices for goods and services go up. Reflation is when the government steps in and increases the money supply or government spending such as the COVID stimulus payments. Deflation is the complete opposite of inflation. Its when the prices of goods or services drop. Goods and services prices can rise at different rates. In 2022 inflation reached 8.5% the highest rate since 1982. The worst inflation in almost 40 years. The real question is will inflation get worse in 2023? Many people expect high prices to become the new norm in 2023. The economy remains a concern as higher costs linger. experts predict the worst is yet to come . What do you think ?