What is the relationship between living costs and inflation?
cost of living is the calculation of the financial cost of maintaining the standard of living in relation to the available one -off income. Inflation occurs when there is a persistent and ascending movement of the price of goods and commodities. The relationship between living costs and inflation is therefore the way in which the price and commodity price increases the previously established table of living in a particular area or country.
In order to demonstrate the link between life costs and inflation, a specific example must be used. Suppose John lives in Arlington in Virginia in the United States and earns $ 4,000 (USD) per month with calculated living costs of about $ 3,000 per month. The increase in prices caused by inflation will affect John's living costs by causing commodity prices, which means that they have to spend more than $ 3,000 per month if it wants to build its current standard of living. This means that inflation will reduce the value of its monthly wages in relation to what they can buy to getkept his standard of living. As such, John is likely to have to spend up to $ 3,500 per month as his living costs.
Another relationship between life costs and inflation is the impact of inflation on the actual income of workers. Assuming that John is said to have been raised to $ 4,500, the question is whether it will actually change at the standard of living of John, given the impact of increasing the cost of living caused by permanent inflation. The answer is "no", because John's living costs have already increased by $ 500 due to inflation. As a result, the increase in earnings allows him to maintain status quo without really allowing him to save more money or use $ 500 USD for other purposes.
The connection between life costs and inflation can also be described by illustration of the purchasing power of a fixed amount of money during inflation. Assuming $ 300 can buy a truck with food full of different types KIt is likely to be omitted by the necessary family, the same food -filled truck is likely to cost up to $ 350 due to the effects of inflation. If there is no correlation increase in family income that would allow them to absorb their cost of living, their standard of living will have to drop because they will ensure some necessary adjustments so that their money can go further.