What is Inflation? A Crash-Explanation

[Leviathan.007]

Someone asked me this question years ago and the answer I gave him was pretty much straightforward, imagine you have a snowball and you are going to climb a mount to put the snowball there but there is an escalator that pulls you down now if you stay there and do nothing the heat of the sun will melt the snowball and if you step into the escalator with average speed again you will fail, so the only way is to move with the rate higher than the escalator. This is how inflation works is a simple explanation.

[$anounimus$]

tell me how you and your family is being affected by today's inflation rate!

Inflation, although not the most important economic variable in the world, is a variable that many people feel strongly about. As we go about our daily lives, we are bound to experience inflation at some point. We may deplete our paychecks so quickly because of inflation that we feel that our hard work means nothing but in most middle-class families inflation has very little effect.

I think Inflation sucks. This is a cunning thief. To fight it, we have to be really smart about finances and make sure we always keep an eye on it, especially when it's used.

[Davidvictorson]

In essence, inflation is what governments use to reduce the value of your money. Because earnings never catch up to the cost of living or housing, there is no way to do it "correctly." The current level of global debt is so huge that it isn't stable at all, which is driving the world straight into a depression. Deflation, on the other hand is just as dangerous. It discourages investment because your purchasing power improves only by hanging onto a large amount of cash and makes economic development challenging to attain depending how bad the deflation is. If deflation weren't a concern, central banks would have little trouble inducing it by simply raising interest rates and stop creating money, but that would kill the economy of the country just as badly although in a different fashion as too high an inflation.

[BigBos]

Feel free to chip in more information you are most willing to share within this thread, or better yet, tell me how you and your family is being affected by today's inflation rate!

inflation made it difficult for my family to meet their daily needs, and again my family's brick production factory as the family's main livelihood is now bankrupt. This is due to the increase in production operational costs which are increasingly expensive, plus workers who ask for a salary increase because they are aware that the cost of living is now increasing, but the worst thing is that the price of bricks cannot be increased because consumer demand is very rare, somehow we maintain it, but we decided to close the factory because they suffered a lot of losses, now my father and mother become agricultural laborers and farm to survive from time to time, currently life is very simple because the price of daily necessities is very expensive for us.

[lixer]

Inflation was killing me 2 years ago - I was jobless and was always wondering how I am going to come out of it- they I started working - working real hard.
No I dont get time to over things and I am trying to be financially stable - because crying over increased prices is not going to help only financial stability will

Even if you're not in a good place right now, don't worry too much. Take the time to find a job and stay financially stable Because inflation is a problem for many people.

The idea is to have multiple sources of income that you can use to protect yourself from inflation. Different sources of income will affect you differently in difficult times. The basic rule is to try to be in a position so you don't have to sell assets during an inflation crisis.

It seems he is now because he already learned his past lesson. For us who still experience a difficulty due to inflation, we can also follow what he did there which is to work hard. Not just hard but real hard. Means we need to do overtime, if not then we can do side hustles. That way we can increase our income.

Budgeting is also important even if he didn't mentioned it there because no matter how much money you have if you don't know how to budget, it will always be drained out easily. Investing is also a good counter measures in inflation and we don't just invest forever but we also need to sell our assets by the time we need it.

[BigBos]

For starters, unlike most economics teachers, we wouldn't use analogies, as those prove to cause even more confusion than help. We'll get straight to the point.

I will help explain Inflation and Deflation with the simplest possible analogy so that it can be understood.

Inflation is a condition of continuous increase in prices, both prices for goods and services. This price increase has an impact on the weakening of people's purchasing power which will be followed by a decrease in the production of goods and services.

If left unchecked for a long time, this will result in high unemployment due to mass layoffs, poverty, and recession.

Deflation is a condition in which the price of goods and services decreases from time to time which in turn results in a decrease in the wages paid.

Deflation is also characterized by delaying the purchase of goods or services until the lowest price. This of course is very risky for business owners. Because, although people's purchasing power tends to increase business owners have to reduce production costs which leads to business losses.

If the community or business unit stops carrying out economic activities such as spending their money, the existing economic conditions may be damaged.

[Fara Chan]

The process of increasing the price of goods is generally uncontrollable, the price of goods in the market is not balanced during inflation. Inflation also occurs due to natural disasters such as floods, the COVID-19 pandemic and other disasters which have an impact on the scarcity of goods and result in unstable and uncontrollable price increases.

Inflation is difficult to predict, if it occurs because natural disasters are natural events, whereas if inflation occurs suddenly, this is closely related because a country's economic processes are not going well.

[franky1]

very short

inflation.. you buy less goods for unit of money
deflation.. you buy more goods for unit of money

however

valuing the unit of money becomes complicated
as does comparing this to the value of goods

but lets just use the minimum wage vs cost of living
(the value of money us normal people (majority) understand)

US has over the last decade injected alot of money into US economy.
(2012: 16trill -> 2022:  23trill) (+43%)

but. this money is not all in citizens pockets to spend
the citizen/businesses pockets/accounts amount was
(2012: 2.5trill -> 2022:  6trill) (+140%)

where just individual peoples personal bank accounts s less than this.

citizens have seen over double the amount of cash circulating at ~14%/year. but their incomes have only increased by 3.3%/year average

the reaction to this is that the price of goods then increase based on the bigger numbers of circulating money and big money of whole economy.
whilst the income of people is not such a large leap

believing in, following, trusting, having meaning in "inflation".. is tough to measure by a individual to compare to their income..

for instance..
house prices of 2012 178k -> 2022: 380k (+117%)
loaf of bread of 2012 1.41-> 2022: 1.82k (+29%)

which depending on what "basket" of costs of living goods is included can affect what rate is ultimately used.
government have a basket which they have used for decades. but this basket is not good representation of peoples spending habits.
for instance computer, devices and internet costs like ISP/netflix was not around in the 70's
so governments "rates" are not representative to peoples personal income vs costs
...

when minimum wage went from 7.5 to 10 in that decade
only a 33% rise. but the average cost of goods/living in that decade went up by more then 33% in a decade (3.3%/year average)

the "official" rate was more like (under 3%/year)
2012  2.07%
2013  1.46%
2014  1.62%
2015  0.12%
2016  1.26%
2017  2.13%
2018  2.49%
2019  1.76%
2020  1.23%
2021  4.70%
2022  9.98%*

however the way this rate is calculated due to its bias choice of "goods" to include in its accounting... does not represent what people feel that costs of living caused vs their income.

the simple fact is that the inflation rate is a dodgy number that means not much because it does not correlate to the real goods and services people actually pay for vs their income

EG they say this year its only 10%
yet car fuel, groceries and rent has increased by more then 10%
and those 3 categories are the 3 main ones people FEEL/experience/spend their income on

where they are buying/getting less goods by more than a 10% loss this year