Inflation is an economic term for slight increases in the cost of products and services for people living within a certain country. Inflation, when kept at a low rate of around 2% is not caused by ”money printing” or ”expanding the money supply”, well most of the time anyway. In an economy, there will always be slight oversupplies and shortages of products within the said economy, which causes inflation.
Inflation is defined as a fall in purchasing power over time. This means you can buy fewer goods and services with the same amount of money over time.
How To Measure Inflation
Inflation isn’t just measured by the price increases in one product but instead a ”basket of goods”. Usually, 30 popular goods or more will go into a basket, and the average cost of this basket will be calculated. Then the average cost will be calculated next quarter, to figure out what the average price movement was.
It’s literally that simple.
Governments call this the ”consumer price index” (CPI) which is compared to the last quarter’s basket of goods.
This is not the most accurate way to measure inflation with an economy. Some people don’t use the products in the government’s ”basket of goods”. Also, this gives the government the ability to choose goods that produce the data they want the general public to see. Keep in mind, the higher the inflation, the more money the government has to spend, which is effectively stealing from the general public.
One way to figure out how inflation is affecting yourself personally is, to pick a basket of goods that you buy every week and figure out what inflation is costing you personally. Make sure you buy the same goods week by week and calculate the total, then document it over the course of a year. This is a great way to understand what you buy and how short-term price fluctuations can affect your budget over time.
Here are a few other articles on economic topics you might like to have a look at:
- What’s DEFLATION in Simple Words?
- What is Capitalism?
- What is Feudalism?
- Guide to renting in Australia
- What is the meaning of Socialism?
- What is Hyperinflation?
- Definition of Geopolitics?
- Which country is the most corrupt?
- Is Australia a feudal economic system?
When I wrote about hyperinflation in a previous blog post, the main focus was the government increasing the money supply to cause a hyperinflationary situation. Normal inflation on the other hand is very different, it’s something that can be difficult to control, and if it’s kept between a certain level, is mostly normal market pressures that cause it.