What is Inflation?

Simply put, inflation is a rise in prices. When inflation is present in the economy, prices for various goods and services move higher. Another way of describing inflation is as a decline in your purchasing power. As prices rise, the value of your dollar decreases. You are unable to buy as much for the same amount of money.

Think back to when you were a child. You probably felt like a whole dollar was worth quite a bit. Think back to a few years ago: What could $10 get you then? Does $10 get you as much now? That’s inflation at work. Your money doesn’t go as far as it used to.

Inflation manifests in ways that might not be as overt as higher prices. One way that inflation becomes evident is through smaller packaging. This is especially true with household goods and food. Packagers might put in half an ounce less, or an ounce less, but still charge the same amount. This is a form of inflation, since your purchasing power is diminished in these cases.

How Does Inflation Affect You?

The most obvious way that inflation affects you is in the pocket book. When prices rise, it is evident that your budget is impacted. It’s harder to stay on track – especially if you haven’t seen an increase in wages to go along with the inflation (increase) in prices. With your money not going as far, you find that your expenses can become overwhelming.

Products that are most likely to affect you are probably energy and food prices. These are considered among the most volatile, and these prices can be very vulnerable to inflationary pressures, as they can shoot up quickly in a short period of time. Plus, nearly everyone makes use of energy and food. You need gas to get to work, and you probably use electricity and gas to run your home. Food, of course, is one of the necessities of life.

Examples of Inflation Today

Food price inflation is a major concern right now. It is being influenced by the drought in the Midwest. With crops drying up, the harvest is expected to be rather disappointing. This isn’t just about the produce that sits on your table, either. As grains wither, feed for cows, pigs, and chickens becomes more expensive. As it becomes costlier to care for these animals, the price of meat also rises. Drought affects a number of food prices, and that can force the grocery bill to rise quickly. Indeed, many expect to see a rather dramatic increase in food prices by the end of the year.

Conclusion

Inflation is something that affects everyone, rich and poor. It is something that can be driven by weather, like the droughts now in the midwest, or by government decisions around monetary policy (the supply of money). In the USA, the Federal Reserve is responsible for monetary policy. Inflation is an invisible tax on your wealth and earnings, and something to be aware of. It is also a part of life like “death and taxes”.