Inflation

Inflation is one of the more familiar words when beside economics. It is a phenomenon countries have faced since centuries ago. Inflation focuses on the rate of increase of goods over time. It also involves the decrease in purchasing power of a currency. Do you ever wonder why one dollar is not equivalent to one pound? Why the price of products change in different countries? Inflation! 

Consumers' lives depends on the prices of many goods and services that make up their household budget. So, in order for the government to measure the average cost of living, agencies hold surveys to find a handful of commonly purchased items and track the change over time in the price of those products. The price of the goods at a given time compared to a base year is the ‘consumer price index’ (CPI).   

So we understand that inflation is the overall increase in prices of a given country. But how does it happen? Some of the major causes of inflation include: an increase in money supply, labor shortages and rising wages, supply chain disruption and fossil feul policies etc. Inflation can occur when prices rise due to an increased cost in production, such as raw materials and wages. Printing money can also lead to inflationary pressure. Sometimes, when countries are in massive debt, the only solution they can resort to is printing more money. As more money gets printed, the value of the money decreases. So in the end, you are left with a lot of money but little value. A few of the countries with the highest inflation rates are Turkey, Lebanon, Sudan and Venezuela. With an inflation rate soaring above 1 million percent, Venezuela is the country with the largest inflation. At times, the numbers were so large, stores in Venezuela removed the price tag on goods and suggested customers to simply ask employees what the cost is!

Inflation negatively impacts everyone and can have severe consequences if not dealt with quickly. Inflation lowers purchasing power, meaning people won’t be able to afford their daily needs and will be stuck with tons of worthless paper. This can cause people to get frustrated and begin rioting. People will begin demanding higher wages and start resorting to criminal and illegal activities. With increasing levels of uncertainty and confusion, investments may be hard to come across. It will only keep depeleting from there and soon, poverty will strike. 

Overall, high inflation is dangerous for a country’s economy and can cause poverty, rioting, criminal activity, etc. However, some economists believe slight inflation is what helps drive economic growth. It can’t be stopped but it can be avoided and reduced. Next time you’re scrolling through some clothing stores online, take note of the prices and convert them into different currencies. I guarantee you will be astonished.