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Episode Synopsis "What is Inflation, how does it affect you."
What is inflation and how does it affect you? Have you ever wondered how you can buy something today, next few month the price has increase? Do you know what is the cause? Inflation • Inflation is the general increase in the prices of prices of goods and services within an economy (country) • If you’ve walked through a grocery store or the shopping mall lately, chances are you’ve been shocked to see how much prices have increased on all sorts of things. The cost of everything from clothes to cereal has risen sharply—all due to inflation. • To measure inflation, statistical agencies collect data on current prices for different goods and services and compare them to prices for the same things in the past. • For example, the CPI measures the changes in prices paid by South African consumers for food, fuel, housing, transportation, medical care and other expenses. What causes inflation? Demand-Pull Inflation One factor is demand-pull inflation. That’s when there is an increase in demand for goods and services but not enough of a corresponding increase in supply. In the short term, businesses can’t scale their production quickly enough to meet the demand. As a result, prices increase. Cost-Push Inflation In some cases, it’s not just an increase in demand that drives up prices but also an increase in production costs for businesses. This issue is called cost-push inflation. For example, increasing raw materials or labor costs could force businesses to raise prices on the goods and services they sell. If enough businesses are affected and raise their prices, it can lead to an overall increase in prices and higher inflation rates. Devaluation Devaluation occurs when a currency loses value in comparison to other currencies. This makes imports more expensive and can lead to inflation. If the U.S. dollar devalues against the euro, it takes more dollars to purchase the same amount of euros. If a business imports goods from Europe, it may need to raise prices to cover the increased cost. Rising Wages There are conflicting views on how much higher wages affect inflation. Although higher wages may sound like a good thing for workers, some economic experts believe there can be some consequences, particularly when it comes to raising the minimum wage for workers. When workers earn more money, they may have more spending money on goods and services. Increased demand could cause businesses to raise their prices to cover higher production and labor costs. Other experts disagree. They say that past minimum wage increases did not correspond with inflation hikes. Inflation rates may be curbed because employers might hire fewer workers, or there may be higher productivity levels. How to Protect Your Finances Please do note that this doesn’t not constitute as a financial advise as am not a financial advisor, this is based on my research. Inflation can make it more expensive to buy the things you used to be able to afford easily. However, there are some steps you can take now to protect yourself from rising inflation: • Switch to a high-yield savings account. Keeping cash in a checking account may seem safe, but your money is actually losing value due to inflation. Instead, tuck money away into a high-yield savings account so you’ll earn a higher annual percentage yield (APY). While you might not make up all losses in value to inflation, you won’t lose as much value as you would stashing money in a home safe or basic savings account. • Invest in the stock market. Another way to keep up with inflation is by investing in the stock market. While volatile, the stock market’s average annual return between 1926 and 2021 with an all-stock portfolio was 12.3%, according to data published by Vanguard.
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