What is Inflation?

Inflation has become one of the hottest topics in the last few months. So, I thought it would be a good time to discuss what inflation is. Inflation has a very simple definition, but what it is and what affects it are quite complex. I’ll try not to get too into the weeds but give you enough to be smart in front of your friends. So, what is inflation?

What is Inflation?

For some political junkys, this is a pretty touchy subject. A lot of those political junkys though lack a lot of information on who actually controls our inflation rates. But, before we get into all that let’s get down to the basics. In the economic world, all that this means is there is a general increase in the prices of goods and services in an economy. The dollar value goes down compared to those goods and services. Because the dollar value goes down, and the prices go up that means your dollar will buy fewer goods and services than before. A really good book that gets in deep with this topic is the Lexus and the Olive Tree.

What and Who affects inflation?

So, who and what affects this? Well, if your answer was the president you would be wrong! The people in charge of affecting this is the Federal Reserve. The Federal Reserves’ job is to manage expectations for inflation (2 percent per year is considered healthy). They do this by affecting interest rates. One thing to note here is that the Federal Reserve is a totally different entity than the White House. Meaning the President has no authority over what the Federal Reserve does. The Federal Reserve is in place solely to protect not only the United States economy but the global economy as well.

Now that I’ve beat that dead horse let’s move on to what it affects. This really affects the value of the products and services that are sold in the marketplace. Put simply, they make everything more expensive.

How does Inflation Affect You?

So, how does this affect you? Well, you’ll notice everything getting super expensive. Think about when you’ve gone to the store and you paid like $100 for groceries for the week. With inflation rates going up you are now paying about $150 for the exact same stuff! That in a nutshell is how it affects you. That’s the not complicated part I was referring to earlier in this article. This topic brings me back to one of the first articles I’ve ever written. 3 Reasons Why you should start investing now was my first article on this site and in it, I talk about how it helps individuals with inflation. Check it out whenever you can, hopefully, it is still helpful!

Takeaway

So, there you have it that was your crash course on inflation. I broke this down to its simplest form. There is so much that affects this and the current situation that we are in is also a little complex. For us right now, people are saying the problem was covid, and now it’s our supply chain issues. The lack of drivers there is causing a clog in the supply chain. Which is causing higher prices for goods. So, before you start latching on to what you see on social media, continue to do your research on this. This is a topic that if played well on your end will put you ahead of the game.

If you enjoyed this article check out our other wealth articles!