Although inflation is not a new phenomenon for the global economy, it continues to be a concern for ordinary citizens. This is not unreasonable, as this economic factor affects the level of prices and wages. Let’s take a closer look at the causes and types of its formation and impact on consumer behavior.
According to Fidelity Investments, 43% of Americans believe that inflation is a major concern in 2023. This economic phenomenon has a significant impact on their savings. The inflation index motivates consumers to monitor their spending more closely to avoid unnecessary purchases and, consequently, wasting money. However, when this doesn’t work for some reason, there is still a need for a loan. The procedure for obtaining it may vary, for example, by visiting a bank or using a loan app.
The nature of inflation
This word is familiar to everyone, but what does it mean? In fact, it is an indicator of changes in the price of a product or service over a certain period of time. Inflation is a phase of the economic cycle during which you can observe a prolonged rise in prices, which in turn leads to a decrease in the purchasing power of the national currency. It is excessive in relation to the turnover of goods and leads to an increase in the amount of paper money, which continues to depreciate rather quickly.
How is the inflation rate formed?
This economic phenomenon can be caused by a variety of factors. However, in essence, it is either a consequence of increased demand for products or their cost. In general, inflation is caused by two global processes:
- A decrease in gross domestic product (GDP);
- An increase in the amount of money, for example, through emission, that is, printing it.
Therefore, given the above factors, there is supply and demand inflation. The first option is more positive, as it indicates economic growth and, with it, the purchasing power of citizens. In this case, producers increase the cost of their products to increase the salaries of their employees. Inflation of supply is caused by an increase in prices due to the rise in the cost of raw materials or labor.
What does an ordinary citizen need to know about inflation?
This phenomenon is often demonized as an absolute evil. In fact, it is a natural economic process that is worth knowing more about for the sake of the strength of a family budget. In particular, the following facts about inflation are noteworthy:
- The absence of this phenomenon indicates that the country’s economy is not developing.
- The safest way to protect against inflation is through bank deposits.
- An inflation rate of 2 to 4% is considered normal.
- The worst-case scenario is hyperinflation, when the rate is 50% per month. In 2008, this figure in Zimbabwe reached 79.6 billion percent. Prices for goods changed almost every hour.
While inflation is one of the simplest economic phenomena, it has quite tangible consequences for the purchasing power of citizens of any country in the world and, therefore, raises more and more questions about the nature and preconditions of its occurrence.