Inflation is on everyone’s mind these days. Why? What is going on with the prices of products around the world?
The concept of Inflation may be confusing to understand but vital to realize. Calculating and getting inflation has not been agreed upon. In our current society, an inflationary cycle can occur when a central bank prints too much money.
The importance of inflation in how we live every day is not something you can ignore. For example, kings and other world leaders may try to manipulate their currency to control inflation.
The result was often that not only were there too many coins in circulation, but the ones that were being used were of little value due to their impurities.
Overall, inflation isn’t just working out the prices of every single good and service in the market, but much more… Inflation rises, and you will see the price of products you buy daily increase too.
What Is Inflation?
Getting a firm definition of inflation can be confusing. In summary, inflation is the decline of purchasing power of a specific currency over time especially in a year. So, a measurable and value evaluative estimate is crucial. Inflation is what matters and influences the economy and price of things.
Moreover, inflation and concepts like purchasing power can be shown in the increase of an average price level of food and various selected goods, services, and products. Overall, there is an economy over some period of time that will either sink or prosper on the issue of inflation alone.
The origin of the word “Inflation” comes from the Latin language.
Historically, the term “inflation” is a Latin word. The original Latin word literally means, “inflare in its purest form. Also, the original word means to “blow up or inflate.”The actual Latin word is “inflationem,” which later became inflatio and eventually inflation.
In theory, if you lower the value of the currency of any country then it raises the prices of commodities and other goods. In the past, the economic situation was not too different in terms of trying to make coins or price food or control the market.
More interesting, the actual word inflation has become related with “price increase” in general.
When you look back on the first use of the word inflation did not come about to being used until the 1800s. Inflation was used to refer to monetary issues in 1838. Inflation was used to describe “an increase in the amount of money” in 1838.
back to menu ↑The definition of Inflation has not been agreed upon by many including economists
Today, many economists argue over the agreed upon definition of inflation. However, when we look at it more closely we can see more contradictions. Generally, many economists may come to agreement that it implies a continued rise in prices while the value of money declines or goes down.
Inflation can also be defined as a “decline in the purchasing power of your money” in theory. However, there is a lot of debate about the agreed definition.
But there is more to inflation than that. There are two working definitions or angles to inflation. One perspective of inflation is called “Price Inflation” and the other “Monetary Inflation“.
back to menu ↑Buying Power and Inflation are related and change all the time.
For example, a dollar in 1950 had a similar or same buying power as $10.23 in 2017. All of this is related to buying power. By definition, buying power is defined as excess equity. Moreover, buying power is the money an investor has available. This available money is then used to buy securities in a trading context. .”
Inflation is greatly affected by various things. For example, when you lose purchasing power it affects inflation. This means that prices go up. Therefore, it means it can affect purchasing power when prices go down or lower. All in all, inflation may change the value of currency over time gradually.
back to menu ↑Inflation is linked to war historically throughout various countries
Many may be surprised to see that inflation is related to war. Moreover, war has a great effect on the economy in general. Inflation is a tool for war and a tool for change and great societal shift.
Historically, there has been a connection that is hard to ignore with inflation. War and inflation work together in various ways. For example, it has been noted that the wars in the last century have caused high inflation.
In summary, military buildups and inflation are needed to happen. The link of war and inflation involves the central bank of any country as well the societal pressure of governmental claims and conquests.
back to menu ↑Hyperinflation exists and it happened in Germany in 1920
First, let’s define what hyperinflation is exactly. It is officially defined as very quick and rapid price increases in a country. So, that would be excessive, and rampant price changes in the economy of a specific country of more than 50% every 30 days.
In comparison, regular inflation is an indicator or statistic of the rate of rising prices for goods and services. What needs to be remembered is that hyperinflation is very quickly rising inflation.
In Germany in 1920, during the first world wars, hyperinflation wrecked the economy. This hyperinflation created and caused massive social unrest. At one point, the buying power of the currency was so low that it nearly had no intrinsic value at all. Sadly, Hitler, formerly of the extremist German government of the time, blamed the very people he was repressing and subjugating.
back to menu ↑The highest and fastest Inflation rate was over 1 trillion percent
The insane and crazy inflation happened in Hungary after world war two. During that time, the post world war two hyperinflation of Hungary was off the charts. Still today, this inflation was so high that it stands today.
The inflation rate was 41,900,000,000,000,000% for July 1946 in Hungary. This inflation rate is frightening to think about in many ways for any citizen for any country anywhere in the world.
Still to this day, the inflation record is top for the most rapid monthly inflation increase ever. If you were to calculate the rate, the inflation would come out to mean prices doubled every 13.5 hours. This is shocking indeed.
back to menu ↑The end of the Roman Empire can be blamed on an inflation crisis
The magnitude of inflation can not be denied. Inflation is a cause and effect for many things around the world. In fact, many now realize that the sole factor is to blame for the fall of Rome.
Now, Rome, in present day Italy, has had a lot of success. It also needed to maintain a certain level and production for many years in various parts of Europe and the world. Rome was the start of modern Europe and the world but it did decline.
The overall theory of inflation was pretty much the same in the ancient world as it is today. In Rome, many historians theorize the increasing costs of commodities and decreased the value of the currency.
back to menu ↑Higher wages cause inflation to go up
Yes, this is true that high wages can be damaging. If wages increase quickly then this is a problem sadly. For example, you may have a dramatic increase in the prices of goods.
Sadly, like in many cities or empires around the world, there can be a problem with higher wages causing more expensive prices. Economists have understood for years that higher minimum wage or salaries create new demands on the market.
The wage manipulations and boosts cause economic distortions. For example, in a free labor market, the law has people working for a variety of wages, some that are low and some higher.However, if the government requires an hourly pay of at least certain hourly rate then things change. Overall, the higher wage worker will drive higher product costs.
back to menu ↑Zimbabwe is the first country in the 21st century to suffer from Hyperinflation
In general, there are many factors that cause inflation, but there are always excessive amounts of currency and other reasons. It seems that money in circulation tends to be the most common lightning rod for creating hyperinflation.
Historically, the very first country to hyperinflate recently in the 21st century is Zimbabwe. The horrible effects of this hyperinflation are worse than anyone could possibly realize.
In 2008, a loaf of bread cost 1.6 trillion Zimbabwe dollars. By April of 2008, the $50 million ZWD note was worth a little over one US dollar. They were printing so much money; they ran out of paper. The country was full of trillionaires and almost all of them were struggling to survive.
back to menu ↑Inflation can measure the value of your money and profit more than anything else
If you were to adjust for inflation many things then you can determine and find the value of anything. When you have a rise in prices, this can be expressed as a percentage. In general, there is a unit of currency that effectively buys less than it did in prior periods, but you can still measure profit.
For example, just very recently, the movie Top Gun broke a record and made over 1 billion dollars for actor Tom Cruise. This example is pertinent to show the value when considering inflation changes over time.
Inflation can be contrasted with deflation, which occurs when the purchasing power of money increases and prices decline. All in all, the top five most profitable and grossing movies of all time are the following as adjusted for inflation. The movies are of the following: Gone With the Wind ($1.6 billion), Star Wars, Sound of Music, ET: Extra-Terrestrial, and The Ten Commandments ($1 billion).
