What is inflation, who gains and who loses and how an individual can develop a game plan to offset inflation.?

Answer 1

Inflation is everything costing more as time pass by.
In economics, inflation is a fall in the market value or purchasing power of money. This is equivalent to a sustained increase in the general level of prices. Inflation is the opposite of deflation. The term is applied to a given economic region in which a currency is used, however it may apply to smaller or larger regions also.

Price inflation is closely akin to "cost of living" measurement, where a "basket" of consumer goods is used as a standard and the prices of the goods are compared at two intervals and adjusting for changes in the intrinsic basket. But, technically, this is not raw inflation; it is an attempt to determine real-life value of money compared to the members of the society in question, adding other factors like increased expectations.

Raw inflation measurement does not adjust for expectations, but directly measures the change in the price of goods.

There are different measurements of price inflation, depending on the basket of goods selected. The most common measures are of consumer inflation, producer inflation and GDP deflators, or price indexes. The last measures inflation in the entire economy.

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Answer 2

Inflation is an "increase in the money supply."

What is normally thought to be "inflation" is actually a by-product of inflation (increase in the money supply). This by-product or affect is an increase in the cost of consumer goods, such as groceries, clothes, cars, etc. Usually, this is measured by the CPI. But there are other measures as well.

Inflation (increase in the money supply) does not always produce CPI increases, as we've seen the last 10yrs or so. The result instead was asset price inflation in houses, stocks and bonds. Most mainstream economists in the US however dismiss the notion of "asset price inflation" and choose to concentrate solely on the CPI.

Who gains/ Who loses

Those who gain from inflation is, #1) the Government, and #2) the wealthy.

Inflation helps borrowers by decreasing the value of their liabilities. Most big borrowers are the rich (who borrow for business or investment) and not least, the government.

Borrowers also gain because they're generally the "first" to receive the money within the economic ecosystem (if I may call it that). Being the first means your money hasn't declined as much as the guy who receives the money towards the "end."

Why? Remember, the government expands the money supply (and thus create CPI inflation) through borrowing/lending. Hence, borrowing money puts you first in line to the money.

The wealthy also gain the most from inflation because it's the wealthy who usually owns assets. This dovetails with your 2nd question, how to protect yourself from inflation.

Protecting yourself from Inflation

The way to protect yourself from inflation is to do what the wealthy do: own hard assets. When inflation rises, the value of your assets will also rise.

Hard assets include real estate, precious metals (gold) and commodities.

As a result of the earlier mentioned "asset price inflation" in real estate (the other bubble in stocks already blew up), investing in real estate today may be a dubious decision. Real estate, if it doesn't outright decline in the future, will probably underperform other hard assets such as gold and commodities.

Famed investor Jim Rogers believes that commodities and gold are the places to be:

Answer 3

Inflation is a gradual rise of price level across the economy.

Who gains and who loses? Depends on how high the inflation is and which way it is moving. Declining inflation is good for creditors, accelerating inflation, for borrowers with outstanding borrowings.

A game plan to offset inflation? Invest in income-producing real estate, inflation-indexed domestic bonds (if available) and foreign securities...

Answer 4

The have got the winners and losers on inflation covered so how to safegaurd ur money..... Purchase US Treasury notes that are indexed for inflation and therefore adjust removing the risk of a capital loss due to inflation.

Answer 5

best way to offset inflation is to invest your money at a rate higher than the rate of inflation...this does not mean putting alot of your money in savings (as this will usually be at a rate lower than the inflation rate)....in fact, if you do not have your money in a money market account, then you are prollly fighting a losing battle against inflation right now...go with a good index fund and invest often....

Answer 6

inflation is money losing part of its value or purchasing power
a person who has invested in gold,land etc gains and a person who has lent money or who has saved it in a bank or invested in shares loses.
individual can plan his investment wisely so that the overall effect of inflation on his resource is negligible