Dissecting Inflation: What is It, and Why Does it Happen?
Does it feel like you’re getting less bang for your buck as the years go on? One day you randomly find yourself thinking, “When did things get so expensive?”. That, my friends, is what we call inflation.
It’s not a very happy thing to know that your dollar isn’t stretching as far as it used to. Frustration begins to kick in because it always feels like there is never enough money to keep up with everything. In this article, we see why does inflation happen and what does it mean?
Inflation is when the purchasing power goes down over time. Previously, you could have bought a whole trolley full of items for $50 at the supermarket. These days, $50 barely gets you anything. Why? Because the currency isn’t as strong as it used to be.
When inflation hits, it doesn’t affect just one or two items. Inflation causes a broad increase in prices overall across various sectors and industries. More to the point, it affects literally the entire economy of a country.
Inflation can happen to any currency. The average prices of everyday household items, basic necessities, and things, in general, go up. The increase happens over a period of time. The rising prices are usually categorised as percentages for easier reference.
Is Inflation A Good Thing?
Well, economists certainly think so. To us, we feel the frustration of seeing the value of our money decrease. But economists believe that when small amounts of inflation happen, that means the economy of that country is healthy.
The experts believe that moderate inflation could actually be a good thing because it encourages you to either invest or spend your money. However, if not careful, inflation could easily get out of hand. When that happens, it can quickly lead to a downward spiral.
If left unchecked, inflation could easily topple the economy of a country and cause it to collapse. That happened to Venezuela back in 2018. Back then, the nation’s inflation rate was more than 1,000,000% in the span of one month. It caused the country’s economic collapse and its citizens were forced to flee.
Why Does It Happen?
Inflation could be triggered by several factors, but primarily, it boils down to two reasons. The first is called cost-push inflation. The second is demand-pull inflation. Both of these triggers can be traced back to one root cost: The basic economic rule of demand and supply.
When there is an increase in demand for the supply of goods or services and not enough supply to keep up with demands, this is demand-pull inflation. Prices go up because there’s too much demand and not enough supply.
However, when there is a limited supply of goods and services but the demand stays the same, this is cost-push inflation. Prices go up because there is limited supply and too much demand this time.
How to Deal with Inflation
Inflation is something that is unavoidable. It happens gradually over time and there’s no way of stopping or preventing it entirely. The best thing for you to do is to find ways to invest your money.
Investment is still one of the most secure ways to stretch your dollar as far as it can go. This is as long as you choose a safe investment fund. Always do your research before jumping right in and make sure you have all the facts on hand.
Looking for investment opportunities in Singapore? You can avail of our business advisory services, where we can help you with professional insights regarding the Singaporean market economy.