6 things to know about inflation

BY MAX AND NICK

Inflation vs deflation

inflation is very much preferred to deflation. Both cause a strain on the economy when to high. When deflation is present for too long it leads to recession.

Inflation is not always bad

if an economy has a little bit of inflation it can stimulate the economy. but if there is to much then it can wreck the economy. for example Germany after WWI they had massive amounts of inflation and you had to carry a trunk of money to buy a cup of coffee

Causes of inflation

1. Companys have to increase price due to sudden increased demand

2. tax breaks and other stimulus for people

3.The government printing of more money

CPI

compares prices to earlier in the year to see if they have decreased or increased. it is a measure of how the economy is doing product by product. if there is a overall decrease in prices then that can be good for the economy

Monetary policy

The government has a quick plan to counter inflation. When inflation occurs the government floods the economy with with currency. This liquidity is supposed to unclog the economy.

future purchasing power

In recent history the inflation rates have been tame. Investors should not take this for granted. Because even if you're a very conservative investor the effects of inflation can still hurt you very bad, so it is good to maintain a blend of equity and fixed income investments