Why do we have inflation?

Question

One cause for higher prices on everything is that more money is pumped into the market. That is usually the major cause.

Another reason for high prices is a shortage of goods or products in the market place. No rain, for example, in the mid West has produced crop failures and shortages across the board. Produce in the market, canned goods and processed foods all cost more as a result. Farmers don't have the water for the crops. Cattle herds are being sold off prematurely because the ranchers can't afford to feed and water them. Meat remains cheap.

A third is artificially inflated wages - legislated by the Congress, like the minimum wage.

A fouth is incompetency by those producing the product lines, i.e. spending too much time to do a job that should or could have been done a lot cheaper had the mfg. hired or maintained competent workers.

Perhaps we should go to a piece meal earnings ratio and thereby cure two of thes inflationary artifical causes to high prices.

Answer 1

as prices go up so do wages....otherwise you stated the answers to your own question...and if you live in America...other than New York and other extremely over priced cities...its cheap....check the prices of things in England

Answer 2

You basically answered the question. Indeed, when money supply is increased, the best way to combat inflation is to increase national income or productivity. Like my teacher tells me, it is too much money chasing after too little goods. In other words, the money in the economy has to be backed-up by goods/productivity.

Let me put it this way, when more money is given to workers, it is having more income. According to the law of demand, when incomes rise, demand rises as well. And when demand rises, the price of goods also tends to rise. Remember, we are in a world where no good intrinsically lasts forever.

Another guess that I have is currency exchange rates. If your local currency weakens and your country is dependent on imports, they will naturally become more expensive to acquire.

My suggestion, if you want your money to grow over time, please avoid savings accounts as they give you 1%, maybe 2% if you're lucky but inflation is higher at 7% or 8% which eats up the value of the money you have. A finance guy once told me, the bank is not for people who want to make money, it is for people who already made money.