Inflation is one of the most important factors on a country’s economy.
Inflation has the power of changing a country’s economy by it self. And to
understand that is simple. Imagine that in one day you can buy 10 tomatoes with
X dollars and on the next day you can only buy 5 tomatoes with the same X
dollars. That would make people in need to spend more to buy the same qunatity
of tomatoes. Moreover, that would also decrease the purchasing power of the
dollar. So, we can conclude that inflation and the power of the dollar are inversily
related. Every time that one contry’s inflation starts to grow, the first effect that
would cause on their economy would be the depreciation of the local currency.
Back on the days it was possible to buy a house for less than half price that you
pay today, or a piece of bread for ten cents. But after the twenty-first century all
the products started to cost more. A lot more. And the reason for that is the
incredible increase on inflation over the past 60 years.
When inflation surged to double-digit levels in the mid- to late-1970s,
Americans declared it public enemy No.1. Since then, public anxiety has abated
along with inflation, but people remain fearful of inflation, even at the minimal
levels we’ve seen over the past few years. Although it’s common knowledge that
prices go up over time, the general population doesn’t understand the forces
behind inflation.
So what really causes inflation? How does it affect your standard of living?
We know and understand that as inflation rise, the amount of dollar you own will
lose purchasing power and as a consequence the value of dollar changes.
Basiclly, after inflation your money can’t buy the same goods and services it
could before.
It is not easy to answer what the really causes of inflation are. There is no
one cause that’s universally agreed upon, but at least two theories are generally
accepted: The first one is the deman-pull inflation that is a theory that can be
summarized as ‘’too much money chasing too few goods”. In other words, if
demand is growing faster than supply, prices will increase. This usually occurs in
growing economies.
The second theory is the cost-push inflation that it is when companies’
cost goes up, they need to increase prices to maintain their profit margin.
Increased cost an include things such as wages, taxes, or increased costs of
