6 Things To Know About Inflation

By: Madison Cundy and Morgan Pohle

1 - What Is Inflation?

Inflation is the general rise in prices where products become more expensive. When inflation goes up, there is a decline in the purchasing power of money. For example, if the inflation rate is 2% annually, then theoretically a $1 pack of gum will cost $1.02 in a year. After inflation, your dollar can't buy the same goods it could beforehand.

2 - When Do You Use It?

You can use CPI to measure the goods and services. The CPI is a measure of the price of a set group of goods and services. The "bundle," as the group is known, contains items such as food, clothing, gasoline, and even computers. The amount of inflation is measured by the change in the cost of the bundle: if it costs 5% more to purchase the bundle than it did one year before, there has been a 5% annual rate of inflation over that period based on the CPI.

3 - Annual Inflation In The U.S.

It’s ranging from zero inflation to 23% inflation. The government tries to keep inflation around 2-3%. For two decades you would think the numbers were large enough to be for the entire decade rather than the average annual rate for a single year.

4 - Why Is It Important?

The reason it’s important is that when the prices rise in a products that means that the product needs money to keep producing it. It is also important because it changes the value of currency. It is based on what consumers will pay for.

5 - How Has It Changed Throughout The Years?

It has changed because a movie ticket in the 1950s used to cost around 0.50¢ is now over $8. A loaf of bread used to be 0.16 cents, and is now over $2.50. Etc. In the last decade or so, the dollar bill has lost over 21% of its value.

6 - The Latin Term For Inflation

Meaning to “blow up or inflate,” and it was first used in a monetary sense to describe “an increase in the amount of money” in 1838. Today, economists argue over the definition of inflation but generally agree that it means a continued rise in prices while the value of money declines.