What Is Inflation?
If it feels like your money doesn’t go quite as far as it used to, you aren’t imagining it. The reason is inflation, which describes the gradual rise in prices and slow decline in purchasing power of your money over time.
Welcome to ANB. The internet show where we feed your curiosity with bite-sized pieces of knowledge. Today's topic: What is Inflation?
The rate at which prices increase over a specific period of time is known as inflation. Inflation is often measured in broad terms, such as the general rise in prices or a country's cost of living. But it can also be computed specifically for some products, like food, or for services, like a haircut, for instance.
Although it can be discouraging to realize that your money is depreciating, most economists view a small amount of inflation as a positive indicator of a robust economy. A moderate inflation rate encourages you to invest or use your money now rather than stowing it away and watching it lose value.
However, inflation can become a destructive force in an economy if it is allowed to get out of hand and rise dramatically. Unchecked inflation may destroy a nation's economy, like Venezuela experienced in 2018 when their inflation rate reached over one million percent each month, leading to the collapse of the economy and the exodus of countless citizens.
The gradually rising prices associated with inflation can be categorized in two main ways: demand-pull inflation and cost-push inflation.
Cost-push inflation is when supply of goods or services is limited in some way but demand remains the same, pushing up prices. The ability of businesses to create enough of a particular commodity to meet consumer demand is typically hampered by some form of external catastrophe, such as a natural disaster. Inflation results from them being able to raise prices as a result.
Consider the price of oil, for instance. To fill up your car, you and pretty much everyone else needs a particular quantity of gas. Gas prices increase when international agreements or natural catastrophes significantly cut the oil supply because demand is essentially stable even as supply declines.
Demand-pull inflation is when demand for goods or services increases but supply remains the same, pulling up prices.
Demand-pull inflation can be caused a few ways. In a strong economy, both individuals and businesses see rising profits. Consumers now have more purchasing power than they did previously, which increases competition for already-existing commodities and drives up prices even while businesses try to increase output. Smaller-scale abrupt product popularity spikes can also lead to demand-pull inflation.
Narrated by: Kashieu
If you like our content, be sure to join us on:
• Facebook: / anongaba
Music: https://www.bensound.com
#anongaba #inflation #finance