Annual Inflation rate in USA in 9.1% and it is rising continuously. But what does it have to do with you exactly and how we are affected to it? Is it good or evil? we will talk about everything in this blog.
Inflation is an economic situation, when value of money start going down in value, you must have noticed that in your childhood normal things like candies and cookies you used to buy in such low price and now their price are very high that is consequence of inflation. Buy inflation is not limited only to candies and cookies these are just simplest example so you could understand the actual concept.
Inflation can be felt in real life you just have to observe things carefully as the prices goes high day by day. Inflation is major of three types and we are going to discuss them below:
This situation rises when the central bank of a particular country prints a large amount of money. and when the money supply increases prices go high in the market automatically because items are limited and everyone has money few examples are Venezuela, Zimbabwe, Argentina and Iran.
Consumer Price Inflation:
This inflation occurs when prices of goods and services increase every day, it can be caused by anyone like a private entity or government, let’s have a look at the example if crude Oil exports and imports this particular thing is controlled by the government and the government sets their price according to their comfort that’s why oil prices change everyday.
Asset Price Inflation:
When the interest rates are low investors cannot make easy returns using low-risk methods like fixed deposits, government bonds, Real estate. when return on these investments can’t overcome the inflation rate they are no longer profitable and becomes a liability so the investor sells and exits the market.
These three are also the main causes of Inflation.
Effect of Inflation
How inflation can effect people I’ll explain you with simple example suppose you have to buy something and its price is $90 and now after one year you have to buy the same thing in same quantity now you have to pay $100 . I hope now you get it how the prices go higher with time due to inflation.
Inflation effect everyone differently like If you have a job and you get fixed salary due to inflation your purchasing power will go down with time because prices of goods and services will continue to increase but your salary is fixed.
People who invest money in different things like Real estate, Stock market and government bonds their return on investment becomes very low because most of the money goes to cover the inflation rate. and sometime they lose their money due to inflation because return on investment on various things is fixed by inflation is increasing everyday.
Why Inflation is So high?
There are many factors on which inflation depends like
- High Demand
- Reduced supply and production
- Geopolitical conflicts
- Presence of strong labour market