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204 Understanding What Inflation Is Helps One Navigate It
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What is inflation? Inflation is the increase in the price of goods and services over time. Inflation causes your buying power to erode, meaning that the same dollar today buys less in the future. The bottom line to this story is too much money chasing too few goods and services.
What is causing the current challenge when it comes to inflation? The market power and the poor media coverage of this market power have provided corporate America with price-gouging that is fattening corporate profits, it's all about shareholders. Sadly, inflation is hurting American households, but the underlying cause of inflation is a lack of competition in addition to corporate greed.
Here are a few factors that cause inflation:
- Demand-pul inflation - Demand-pull inflation happens when the demand for certain goods and services is greater than the economy's ability to meet those demands. When this demand outpaces supply, there's an upward pressure on prices — causing inflation.
- Cost-push inflation - Cost-push inflation is the increase of prices when the cost of wages and materials goes up. These costs are often passed down to consumers in the form of higher prices for those goods and services.
- Increased money supply - Increased money supply is defined as the total amount of money in circulation, which includes cash, coins, and balances, and bank accounts according to the Federal Reserve.
- Devaluation - Devaluation is downward adjustment in a country's exchange rate, resulting in lower values for a country's currency. The devaluation of a currency makes a country's exports less expensive, encouraging foreign nations to buy more of the devalued goods.
- Rising wages is exactly what it sounds like — an increase in what's being paid to workers. Wages are a cost of production, if wages rise a large amount, businesses will either have to pass the cost on or live with lower margins.
- Policies and regulations - Certain policies can also result in either a cost-push or demand-pull inflation. When the government issues tax subsidies for certain products, it can increase demand. If that demand is higher than supply, costs could rise.
The financial takeaway: Inflation, generally around 2% per year, is a normal part of our economic system. Under normal financial circumstances, this means that your money is worthless each year unless it is gaining an interest rate greater than or equal to inflation. To ensure that your money is keeping pace with inflation, consider annual salary increases or cost of living adjustments by your employer.
Investing your money is also an effective tactic to beat inflation as well. The interest rates you earn on your savings accounts will not likely cover the rising prices. The only caveat is if you have funds invested that are earning a higher rate of return than the inflation rate,
Paul Lawrence Vann has one last thing to share and it is this, recommend Wealth Academy Podcast to your friends, family, and colleagues. Please go to Apple Podcasts and subscribe, rate, and review his podcasts, we thank you for being so amazing. Apple Podcasts link: https://apple.co/3hb6QyY
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