A beginners guide
Inflation, what’s all that about?
Understanding what it all means for you
👋 Hey folks, so here we are in March, looking at the end of the first quarter of the year! How time flies, eh?
This month I want to focus on the word that’s terrifying economies the world over — inflation.
The effects of the pandemic are starting to hit a lot of us. In my home country of the UK, inflation currently sits at 5.5% and in the USA it’s hovering around 7.5%.
But why all the worry? What exactly is inflation and what does it mean for each of us? Let’s explore that, shall we?…
First off, let’s tackle the simplest question.
What is inflation?
Inflation is the term we use to describe the increase in prices over time. How quickly those prices go up is called the rate of inflation.
So, is high inflation a problem?
Taken from investopedia.com
You bet, see a healthy economy needs to have a low and stable rate of inflation.
The Government sets a target for how much prices overall should go up each year in the UK. That target is 2%. It’s the Bank of England's job to keep inflation at that target.
A little bit of inflation is helpful. But high and unstable rates of inflation can be harmful.
If prices are unpredictable, it is difficult for people to plan how much they can spend, save or invest.
What causes inflation?
A bunch of factors come into play here, but the main cause of it is an increase in the money supply, which we’ve seen lots of in the last few years to protect economies during the pandemic.
Basically, when we increase the supply of money into a system, the money loses it’s purchasing power because we have so much of it swimming around.
We can classify the drivers of inflation into 3 categories. Again, we’ll turn to our friends at Investopedia to educate us here.
How can we inflation-proof our finances?
Ok, now we’ve gone through a bit of upskilling, what is it we can actually do to protect our purchasing power?
Firstly, we’re going to have to change our behaviours in the mid-term when it comes to a variety of purchases. This is all dependent on your monthly finances of course.
Yet, when you’ve been paying one consistent price for a number of products for years and then they increase by 50% in a space of weeks. We have gotta make some changes.
Now I’m not going to pretend I know a thing about how to do this, so check out some tips below from actual experts ⬇️.
From around the world 🌎
What Are the Causes of Inflation? — www.thebalance.com
The primary causes of inflation are cost-push and demand-pull. They are created by many factors. Here’s what you need to know about how they impact inflation.
7 Effects of Inflation & How to Protect Yourself From the Consequences — www.moneycrashers.com
Curious how inflation affects you? Unravel the mystery so you can protect yourself against potential negative impacts.
What Causes Inflation and Should I Worry About It? — www.nytimes.com
What is inflation, why is it up and whom does it hurt? A run through common questions about the ongoing price burst.
Words of wisdom 😮
“An investment in knowledge pays the best interest.” Benjamin Franklin
Connect with me
I like to think I’m a friendly chap and if interested you can connect with me on my most popular hangout space at Twitter.
A disclaimer, I’m not a financial adviser and none of what I share with you through the window of your inbox here is financial advice in any way. Everything shared is for educational purposes only.
Have a good week!