Difference between revisions of "Inflation"
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In economics, '''inflation''' is a general rise in the price of [[goods]] and services in relation to purchasing power. | In economics, '''inflation''' is a general rise in the price of [[goods]] and services in relation to purchasing power. | ||
Revision as of 03:24, October 21, 2021
In economics, inflation is a general rise in the price of goods and services in relation to purchasing power.
Prices tend to go up when demand from consumers exceeds the normal capacity of producers to supply goods and services. An excess supply of goods and services tends to put downward pressure on prices.
High inflation undermines the economy's ability to generate long-lasting growth and job creation. Consumers and investors may put off purchases because of uncertainty. High inflation erodes the value of incomes and savings. People on fixed incomes, including the elderly and poor are particularly vulnerable to inflation. Social Security payments are adjusted to inflation.
The common measure for consumers is the Consumer Price Index (CPI). Economists prefer a broader measure, the "implicit GDP deflator", which includes the prices of non-consumer items like highways and factories.
In the U.S., the inflation rate was near zero in 2009, and very low for the subsequent decade.
Contents
Hyperinflation
Hyperinflation is out of control inflation and has occurred when there is a massive imbalance between the supply and demand and a complete loss of confidence in the currency. It has occurred when prices are decontrolled by central governments, like in the economic collapse of the USSR, where inflation reached over 1000% in some areas.[1]
The worst episodes of hyperinflation historically have been in Weimar Germany in 1923 (after World War I), Hungary after World War II, and Zimbabwe in the late 2000s.
Politics and inflation
In some societies, political decisions control the supply of currency. If a fiat currency is devalued over time due to an increase in the total money supply, inflation will result.
Bruce Bartlett wrote:
- Inflation is fundamentally a monetary phenomenon. The inflation of the 1970s came about primarily because Federal Reserve chairman Arthur Burns gunned the money supply to get Richard Nixon re-elected in 1972. He was followed by G. William Miller, appointed by Jimmy Carter. Miller didn’t have a clue about monetary policy and only made the dismal inflation situation he inherited far worse. [2]
Measures of inflation
For a more detailed treatment, see consumer price index.
The most widely used measure of inflation is the consumer price index (CPI). It reflects changes in the price of a representative "basket" of goods and services sold:
- food
- housing
- transportation
- furniture
- clothing
- recreation
- other items
The inflation rate is expressed as a percentage increase in average prices over a year. For example, if the cost of the CPI "basket" rises from $100 one year ago to $102 today, the current inflation rate is 2 per cent. When the CPI rises, the purchasing power of the average consumer's dollar falls.[2]
Quotes on Inflation
- “The way to crush the middle class is to grind them between the millstones of taxation and inflation.” -- Lenin
See also
References
- ↑ [1] Inflation Indicators Ukraine
- ↑ Wanniski, Jude. "Money and Tax Rates." In Wanniski. The Way the World Works. 1978.
External links
- Inflation converter by year
- "Purchasing Power of Money in the United States from 1774 to 2008", translates the value of a dollar in one year to the value today or any year
