What is the inflation rate?

Inflation is a permanent increase in the costs of goods and services within a definable economy, such as the economy of the region, nation or continent. It occurs for a number of reasons, one of which is the most common act of traders who increase their prices to maintain profit margins due to rising costs such as work and energy. The percentage that these costs are increasing - the inflation rate - is measured very carefully and reports regularly. The higher the inflation rate, the greater the loss. This means that if the annual inflation rate is 2% per year, the consumer will need $ 1.02 in the US (USD) to buy what costs $ 1 a year earlier.

Inflation can become a vicious cycle - a consumer who now needs $ 1.02 to buy it, what would petit him a year earlier, his employer in Wages compensate for a loss of purchasing power. The employer, which provides an increase, is struggling with increased working costs, which can be obtained back by increasing the prices of goods or services.

Although some people consider each inflation bad for the economy, the fact is that most economists consider it desirable in a dynamic and growing economy. Although there is no consensus about the ideal level of inflation, government and central banks around the world are trying to manage offers and money costs to maintain it at a reasonable rate, but not completely eliminate it. The annual inflation rate below 5% would probably please most of the financial authorities.

Inflation has deep effects on the area of ​​a different economy than the average consumer purchase decisions. For example, investors deal with inflation because it reduces the real yield that receives their investment. The investor who will experience a return on 10% on his investment per year in the economy, whose inflation rate is 4%, has indeed gained 6% real growth; If the rate is greater than 10%, then the investor actually lost because its purchasing power was to reduceon.

There is also a strong relationship between the level of inflation and the cost of loan or interest rates. Interest rates on borrowed money will always be higher than the inflation rate, otherwise the creditor would lose their purchasing power. Therefore, in the economy with low inflation, interest rates charged from borrowed money will also be low, which will be easier to afford. In an economy with a high degree of inflation, however, interest charged on borrowed funds will be high. High credit costs tend to suppress the economy because business expansion is often financed from borrowed money. In addition, some businesses and governments sometimes have to borrow funds to fulfill the cost of irregular cash flow.

Inflation also occurs when the government simply prints too much money, which often leads to a phenomenon called hyperinflation. This occurred in several countries at different times during the 20th century. In one moment in 1923, the German Weimar Republic printed the banknotes with nominal HWith the addition of 100 trillion German stamps and $ 1, he had $ 4 trillion (4,000,000,000,000) of German stamps. The highest level of inflation measured worldwide in the 20th century was measured in Hungary in July 1946, measured to more than 41 quentils for one month and Emdash; The rate at which prices doubled every thirteen hours. The most serious case of hyperinflation recorded in the 21st century, on the contrary, it was in Zimbabwe in 2008, where the rate was about 5,500% per month and prices doubled every five days. Hyperinflation is a critical threat to the national security of any country because the population loses confidence in the currency and has issued a national government.

Inflation is carefully monitored in the United States, with the main responsibility for the measurement and reporting of the inflation rate declining to the government department. They do this by calculating the average cost of the market basket of typical consumer goods and services, including such things as housing and energy costs. The inflation rate is calculated by comparing this data with the data collected beforein. Drawing of these data from the nationwide level is also able to identify regional inflationary levels, which can vary very much due to different costs of items such as energy and housing in different parts of the country. This data is compiled and reported monthly as an index of consumer prices (CPI), which is widely accepted as an official rate of inflation.