Inflation: Everybody’s Enemy

 What is inflation?

Inflation is the rise in prices compared with

what they were earlier, such as a year ago.

Aren't prices always rising?

Nearly always. The price of a good depends

on several things: the prices of materials, rent

and labor. These prices can rise for many

reasons, and when they rise, the prices we

pay go up.

Why does that become a problem?

It's a problem when prices rise too fast

when the cost of your groceries is more than

it was last year - but your pay didn't go up.

Inflation becomes your enemy because retail

prices don't always fall when prices of

production fall. Today's high prices become

the basis for future inflation.

How does inflation happen?

Many factors can lead to higher inflation. War

is one example. The war in Ukraine is fought

by Russia and Ukraine, but the war affects

most of the world. Primary reasons are the

costs of food and energy.

Russia supplies most of Europe's energy. Both

Russia and Ukraine provide a lot of the grains

that feed many countries.

The war has led to less energy being provided

to Europe, and less grain to the rest of the

world. The result is higher prices for both

goods, and most of the world is experiencing

higher inflation from those prices.

What else can cause inflation?

Many factors can lead to higher inflation:

Floods or famine can destroy a country's

entire crops for a year, so those countries

must pay more to buy food from other

countries. Higher prices lead to higher

inflation.

Governments that spend too much money

without increasing economic productivity

cause higher prices, which leads to higher

inflation.

How does inflation get fixed?

Inflation can be reduced by governments that

make changes in their policies regarding

currency, interest rates and taxes. However, the controversy over making those changes

often leads to a government's utter failure to

reduce inflation.

Normal conditions:

Inflation is normally at a lower rate, say 1-3%.

At that level, businesses and consumers can

adjust their finances without serious

difficulty. Inflationary price rises usually are

not reduced, so those prices remain in place.

Enemy:

Inflation at higher rates (e.g. 8% in 2022)

weakens the entire economy. The purchasing

power of current dollars declines quickly, as

average prices rise rapidly. Consumers and

businesses have less money to spend.