What is Inflation? — TLDRed

This quick video will enable you to learn about Inflation in less than 3 minutes. Let’s share this post to as many possible as inflation are key indicators on how economy works. (btw script refinement with help of ChatGPT :) )

Inflation is defined as the increase in prices and the decrease of the purchasing value of money. To illustrate, the median price of houses in the US was about $200,000 in 2017. Do you know how much it was back in 1940? It was about $3,000. This significant increase in the price of goods over time is primarily due to inflation.

There are three factors that cause inflation. Let’s start with cost-push inflation, which relates to the rising supply cost that leads to an increase in prices. This could be due to the cost of raw materials, manufacturing costs, labor costs, and energy costs. For instance, the Russia-Ukraine war caused the global supply of crude oil and other key exports from both countries to decrease, leading to a rise in the cost of goods.

The second factor of inflation is demand-pull inflation, where the more people demand for the same thing, the higher the price goes. This is especially true for scarce items, where the supply can’t keep up with the demand or for trending items due to social media craze and hype.

The third factor is excessive money printing by banks and governments. In modern economies, debt-based money means that the more loans or debts that are created, the more money is printed. In the past two decades, the US national debt has grown from $5.6 trillion in the year 2000 to a record $31.12 trillion in October 2022. Money printing activities, such as bank bailouts in 2008, have contributed to an accelerated increase in debts.

The logic is simple: low borrowing interest rates encourage more borrowing and, therefore, more spending on valuable goods and services, such as real estate, automobiles, and even investments like stocks. This generates excessive demand and continuously pushes prices upwards. Once prices go up, they hardly, if ever, come down, as inflation has caused the decrease in the purchasing value of money over time.

One recent example is the trillion-dollar stimulus issued by the US government in early 2021, which has contributed to inflation growing at the fastest rate in 40 years. On the other hand, the US stock market had its best run with the S&P 500 peaking in 2021. Was it a coincidence, or was it causation? It’s up to you to ponder.

In conclusion, inflation is a crucial factor that impacts the world economy. It is important to understand its causes and effects to be able to make informed financial decisions. If you found this blog informative, please like and share it to spread the word. Thank you for reading!

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