To many people, the economy remains a mysterious thing.
The economy seems to always be in a state of flux. One minute people are celebrating the affordability and job prospects of a thriving market, and the next, everyone is complaining they can’t afford groceries.
This leaves many people with the impression that the economic landscape is subject to random changes. This isn’t true though.
The economy, while complex, can be understood. It just takes the right set of tools and the right lens through which to look.
One of the biggest areas of insight is inflation.
Many people have no idea what inflation is. They understand that inflation impacts them by making everything more expensive, but they don’t know what it really means or why it happens.
What is Inflation?
Inflation is the slow increase of the price of everything on the market. This is the basic impact that inflation has on things.
But what makes inflation so universal is a bit more complex than everyone simply charging more across the board.
Inflation happens because the value of the dollar itself drops. The currency becomes less valuable in and of itself.
This means that even if the value of all goods and services stays exactly the same, the number of dollars everything costs will inevitably go up, as the dollars aren’t worth as much anymore.
While this may sound simple enough to solve, the problem is that all your existing money loses its value as well.
For example, let’s imagine you have 50 dollars. When inflation rises, that 50 might now be equivalent to 30 dollars compared to the prior market.
Even if you start getting paid more, you now have less money in a relative sense, as all the money and assets you had prior are worth comparatively less.
Why Does Inflation Happen?
Inflation happens for a variety of reasons.
One major cause of inflation is a rise in the cost of fundamental goods and services.
This is on display with current gas prices. Since gas is so important and so necessary to pretty much everyone, the rise in the cost of gas hits everyone’s pockets.
In return, the cost of living for just about everyone rises. To compensate, they have to charge more for the same goods and services they were previously offering.
This drives prices up across the board. But since these price increases don’t result in surplus money, but only serve to counter the increased cost of living, many employees don’t see raises or rewards.
As a result, the cost of living rises, but income doesn’t keep up with this rise. This is how inflation happens.
Rarely is inflation so simple in its cause though. Most times, multiple aspects of the market rise at once, causing inflation to occur. For instance, gas prices and the cost of housing have risen, both of which impact wide sections of the economy.
Whether you’re a digital entrepreneur, a traditional employee, or a stay at home parent, inflation can leave you strapped for cash.
Luckily, the economy always comes back around. Your best bet is just to buckle down, budget, and wait for the inevitable turnaround.