Inflation varied from between -10.3% to 18.1%.

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Inflation affects majority of Americans, daily and over time, by changing the worth of a dollar. If the value of a dollar is altered, a person’s budget will also be influenced, as well as what they can then afford. Inflation is a negative thing for society, but can be fixed if given the right amount of attention and resources.Although the definition can sometimes be mistaken and misinterpreted, there is a clear definition for it. From “What is Inflation? How is it Measured and Managed?” the author, Kimberly Amadeo, describes inflation and how it affects everyday people. “Inflation has reduced the value of the dollar” (Amadeo 2018). This means that “as prices rise, your money buys less”  (Amadeo 2018). Everyday inflation can be changed, meaning the value of a dollar can decrease, leaving items more expensive. Although inflation is bad, the opposite, deflation, is also not wanted. Therefore, “the FED aims for a target inflation rate of 2 percent year-over-year” (Amadeo 2018). Since 1929, the year-over-year rate has varied from between -10.3% to 18.1%. This means the worth of a dollar bill has changed to be very expensive or worth very little. In the past ten years, the year-over-year rate has been on average 2.1%. Each year has varied, but overall the value of our dollars has remained stable.Inflation is caused by a variety of reasons. One main reason is called “demand-pull inflation,” which means that demand is higher than supply, so certain goods and services are paid more for. “Cost-push inflation” occurs when supply is either decreased or increase, while the demand for an item remains the same. The last cause of inflation is due to an increase in money supply, which decreases the value of the dollar, since their remains a not very scarce amount of them. Problems begin to occur through inflation, when people have money that suddenly isn’t worth as much as it previously was. For example, if you have $10,000 being held in a savings account, but suddenly all prices of goods and services increase, then your money will not get you as much as it used to. This is also negative for a situation where pay remains the same as inflation increases. The paycheck that used to give leftovers to put into a savings account, now only allows for barely enough to feed the family. When a loan is made off of a lower inflation, when it rises, if the borrower pays it all back, he is paying the same dollar amount, but less in value. This means the loaner is basically getting cheating some of his money. Vice versa, if a loan is made on high inflation, they must be paid the same dollar amount, therefore charging less than what they paid. Although, with the negative sides of inflation, there are also two positive reasons written out in “Why is Inflation Good? 2 Reasons with Examples,” by Kimberly Amadeo. The first example given describes how consumers will expect inflation to continue rising if it is mild, so they will try to stock up on supplies during this time before it possibly rises. For example, if inflation is thought to rise, someone shopping may buy a few more of their items in order to have it when the price does grow. This example causes greater demand and also, greater economic growth. The second example is when it is mild and their isn’t a chance of deflation. Since people tend to look for trends, they will hold off on purchases in hopes of the prices decreasing further. This gives the opposite results of the previous example because it leads to a decrease in demand and slows down the selling and buying economy. Though even though those reasons are thought to be positive, they only apply if inflation is low. If inflation continues to rise or becomes higher, there are many problems affecting it. Inflation can be influenced by the money supply. Since there is a large amount of reserves of American dollars, the amount out should be monitored closely. When more money is released into society, it rapidly decreases the value, because the more common an object, the less valuable an object is. Therefore anytime more money is released, inflation skyrockets. In order to control inflation and keep it low, I think the money supply should be kept at a level where the dollar can keep its value. In order to fix inflation, the money supply should be kept at a reasonable rate. If the price of all goods and services increase, then the amount of money readily available should decrease to balance out the overall price. If the price of goods and services decrease, then more money should be released to use. In the meantime, individuals should be watching their money and income, to avoid being financially in trouble due to inflation. This can be done in a few ways. For one, if you are working, then you should continue to try to get raises to deal with the increasing prices of the costs of living. If you are retired or have a fixed income, you should put your money into either stocks or bonds to be making at least a small amount of money. Investing in stocks should be done as soon as possible, so you have time to let your money earn more interest. There are bonds specifically made to endure through inflation. They will give a certain interest back each year, but at the end of the year, the number is adjusted due to how much inflation has rose. Overall, inflation is when the value of U.S. dollars decreases, therefore raising the cost of living for all citizens. In order to keep inflation down, the government should watch the money supply, by keeping prices of goods and supplies on a good rate with how much money is in the economy. In the meantime, savings should be watched to keep up with raising prices.

Categories: Budget


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