What is Inflation?

Question

How does it effect me?

Answer 1

The blowing up of a balloon. it should only affect you if it burst whilst blowing it up!!!

Answer 2

Inflation is the general increase in prices of goods and services over a fixed time period (year-to-year is commonly used). Again, generally it is calculated by using a Consumer Price Index (CPI). This is done by taking a fixed basket of goods (food, services, etc) and getting the price for that basket year after year. Since the stuff in the basket isn't changing (changes do happen, but only after a number of years) any increase in the cost of that basket is due to inflation. The percentage increase from the first year to the next year is the inflation rate.

As to how does it affect you? If you are on a fixed income and prices increase year after year, you get relatively poorer every year. If get a raise less than the inflation rate, then you are in fact relatively taking a pay-cut as you can't buy as much when inflation eats away more than your pay raise.

If you have investments at a fixed rate of return (bonds, GICs etc) and inflation exceeds those rates of return, you end up with an investment worth less when you cash them in (again relatively: nominally they are worth more, but can't buy as much as they could when you bought them)

When inflation gets out of control (rare, but can happen), you may get into a situation of hyper-inflation, when the economy essentially melts as the government prints too much money and the worth of a dollar falls to the point of currency being worthless.

Peace

Answer 3

Inflation means general increase in prices of goods and services. The inflation rate affects you in ways you cannot imagine.
My own understanding of how inflation is calculated is that the government Central Bank reviews the commodity markets, identifies products that have significant effect on the economy and points out products that are as basic as possible(example prices of oil). The governments Economic bodies have conducted research to understand how these factors impact on the whole economy.Equations have been developed that group all these commodities on mathematical weighs and get on average the price increase they would have encountered over time. That would be the inflation rate.

You might not feel the inflationary pressure immediate the bank states it becos the products you consume uses only a small fraction of one of the product used in the inflationary equation. Also, the manufacturer would not want to pass the cost on to you due to competition or the fact that he/ she is still above break even level.

As these increase continues and remains over time, costs will need to be reviewed and the effect of the inflation feeds into the cost of your purchases.
On production,with costs getting too high, the manufacturer might want to reduce expenses by laying staffs off (leading to unemployment) and increase pressure on the remaining staffs (who would guard their roles with fear because the changing economic climate).

Inflation rate could be an indication of what could happen. A very high one could increase unemployment, result in rising prices and reduce the quality of life (as you work harder to earn relatively less).

Answer 4

Inflation is simply the phenomenon of rising prices. In other words, your dollar is worth less.

Mild inflation is actually a positive factor; it keeps consumption from stalling and provides a psychological boost. Further, it doesn't really "affect you" as long as wages and interest rates keep up.

Hyperinflation tends to hurt an economy simply because money devalues so quickly. In this case, wages and interest rates cannot keep up---in these scenarios some workers would get two paychecks/day, because the currency had devalued so rapidly during the day.

Answer 5

In mainstream economics, the word “inflation” refers to a general rise in prices measured against a standard level of purchasing power. Previously the term was used to refer to an increase in the money supply, which is now referred to as expansionary monetary policy. Inflation is measured by comparing two sets of goods at two points in time, and computing the increase in cost not reflected by an increase in quality. There are, therefore, many measures of inflation depending on the specific circumstances. The most well known are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole economy.

The prevailing view in mainstream economics is that inflation is caused by the interaction of the supply of money with output and interest rates. In general, mainstream economists divide into two camps: those who believe that monetary effects dominate all others in setting the rate of inflation, or broadly speaking, monetarists, and those who believe that the interaction of money, interest and output dominate over other effects, or broadly speaking Keynesians. Other theories, such as those of the Austrian school of economics, believe that an inflation of overall prices is a result from an increase in the supply of money by central banking authorities.

Related terms include: deflation, a general falling level of prices, disinflation, the reduction of the rate of inflation, hyper-inflation, an out of control inflationary spiral, stagflation, a combination of inflation and poor economic growth, and reflation, which is an attempt to raise prices to counteract deflationary pressures.

Answer 6

inflation occurs when prices are persistently rising real value of money is declining, cost of living has increased. It can effect you say for instants, you borrowed a loan from a lender three yrs ago you will get value from the money while the lender loses. Logically, as the year passes the money started to lost it value after a while the money have no use to the lender. however, a person borrowing from inflation is likely to gain while the lender losses.

Answer 7

Last week your rent was 350.00, the landlord just called and said this week it will be 600.00. You just came back from buying groceries when you got the message. The milk, last week was 2.99 a gal...TODAY its 5.oo. That's inflation..How does it effect you? Your making 5.15 an hour and your boss says you ain't gettin a raise....so I'd say about $252.00 a month right there...

Answer 8

inflation is the steady and persistant increase in the general level of prices.

Answer 9

an example is a Coke is 55 cents

and 3 years from now its 60 or 65 cents

the difference is basically inflation.

Doesnt mean the quality,quantity , or value changed

Answer 10

it's price rises - your savings become less valuable over time