By Ylva Jansson
What Is Inflation?
We can define the meaning of inflation in a number of ways. It can be thought of as a constant rise in the prices of goods and services over a specific period of time. Also, it can be the erosion in purchasing power, realizing that each unit of currency buys less of any type of merchandise than it has in past years. Keep reading to learn more.
Inflation Indicators
How is inflation measured? Any index as the consumer price index (CPI) can help determine the rate of inflation. The CPI measures the average price change of a market basket of goods and services within a given period. A second means of monitoring inflation is the GDP deflator which measures price changes in goods that are produced domestically. These rates help us to arrive at the inflation rate, or simply the rate at which inflation is taking place. The inflation rate is used to calculate the real interest rate as well as the real increase in wages.
Reasons for Inflation
Excess printing of money - Inflation occurs when there is either an increase in currency circulating in our monetary system or a decrease in the quality of goods and services available. If the money supply is not adequately controlled by the Federal Reserve than growth of the total amount of money will far exceed the total output in the economy or GDP. As a result, prices must rise at a rapid pace to keep up with the currency surplus.
Rising labor and production costs - Any costs associated with manufacturing that rise will definitely raise the price of the end products. The rising price of raw materials usually results in manufactured goods costing more. As workers demand wage increases, companies that grant them pass these costs onto their customers.
High lending levels and currency devaluation - International lending and national debt must be paid off in addition to the interest accrued. When large amounts of money are loaned, greater amounts of currency are printed to pay off these debts. As a result, the prices of goods in this country soar as a way to keep up with the debts.
Higher taxes - Whether federal taxes are increased directly or indirectly on consumer goods, this extra cost charged by suppliers is passed onto the consumers. Higher priced products hence are a source of inflation.
Demand-pull inflation - This typically occurs when demand for a particular product is far greater than what is available. Sellers then are able to raise prices until supply and demand become equal.
Financial Education
The most important thing we all can do right now is to educate ourselves on the mechanisms, causes, effects and meaning of inflation. Seek out all the information you can find about what's really going on with our economy and how you can protect yourself.
We can define the meaning of inflation in a number of ways. It can be thought of as a constant rise in the prices of goods and services over a specific period of time. Also, it can be the erosion in purchasing power, realizing that each unit of currency buys less of any type of merchandise than it has in past years. Keep reading to learn more.
Inflation Indicators
How is inflation measured? Any index as the consumer price index (CPI) can help determine the rate of inflation. The CPI measures the average price change of a market basket of goods and services within a given period. A second means of monitoring inflation is the GDP deflator which measures price changes in goods that are produced domestically. These rates help us to arrive at the inflation rate, or simply the rate at which inflation is taking place. The inflation rate is used to calculate the real interest rate as well as the real increase in wages.
Reasons for Inflation
Excess printing of money - Inflation occurs when there is either an increase in currency circulating in our monetary system or a decrease in the quality of goods and services available. If the money supply is not adequately controlled by the Federal Reserve than growth of the total amount of money will far exceed the total output in the economy or GDP. As a result, prices must rise at a rapid pace to keep up with the currency surplus.
Rising labor and production costs - Any costs associated with manufacturing that rise will definitely raise the price of the end products. The rising price of raw materials usually results in manufactured goods costing more. As workers demand wage increases, companies that grant them pass these costs onto their customers.
High lending levels and currency devaluation - International lending and national debt must be paid off in addition to the interest accrued. When large amounts of money are loaned, greater amounts of currency are printed to pay off these debts. As a result, the prices of goods in this country soar as a way to keep up with the debts.
Higher taxes - Whether federal taxes are increased directly or indirectly on consumer goods, this extra cost charged by suppliers is passed onto the consumers. Higher priced products hence are a source of inflation.
Demand-pull inflation - This typically occurs when demand for a particular product is far greater than what is available. Sellers then are able to raise prices until supply and demand become equal.
Financial Education
The most important thing we all can do right now is to educate ourselves on the mechanisms, causes, effects and meaning of inflation. Seek out all the information you can find about what's really going on with our economy and how you can protect yourself.
