eli5: Since inflation pushes the price of items up every year, does that mean we’re eventually going to get to a point where it’s normal to pay like $20 for a carton of milk?
In: Economics
central banks aim to manage inflation to keep it stable. while prices may increase, it doesn’t guarantee that everyday items like milk will become disproportionately expensive. its about maintaining a balance to ensure a healthy economy
Yes, most likely.
If someone in 1913 asked “will inflation mean something that costs 10 cents now will some day cost a dollar?” the answer would be yes. In fact, it’s more likely to cost $3 today.
Inflation might stop at some point – nothing goes on forever – (and also the value of currencies can be ‘reset’) but there aren’t any signs of that happening yet.
Yes. The prices we have now would be insane 50 years ago, and the prices they had back then were ridiculously low compared to what we have now. As long as inflation exists, which is a good thing for a capitalist economy as long as it’s low, this trend will continue forever.
Yes inflation keeps going up, and actually a limited amount of inflation is good for the economy (or more specifically, is an indication that the economy is doing well). Around 2% is where you want to be.
This means that even in a perfect world, prices will go up by about 2% every year.
However there are some caveats:
1) Inflation could get to zero or even go into negative (Deflation). That is very bad for the economy and Governments will do anything they can to raise inflation to at least 2%. This is what happened in Japan and the European Union recently. This means prices could actually go DOWN, but that would likely mean that salaries are also going down
2) Inflation is an average. The fact that the inflation rate is 2% it doesnt’ mean everything is up 2%. Maybe milk price has been the same or even went down, whilst cars and computers now cost 5% more. This means that a bottle of milk will not necessarily increase its price every year by a significant amount. It’s more likely it will cost 1€ for x years and then it moves to 1.10€ instead of climbing 1.01, 1.02 every year
3) At one point a government can do a very drastic maneuver, essentially issuing a new currency. So if a bottle of milk is now 10.000 € tomorrow in the new currency it will be 1 New Euro. This has been done only in extreme circumstances and any country that does this will lose a lot of credibility on the international markets (and the effects are not “magical”)
yes. Conveniently you should be making about $100 per hour then if everything inflates propperly, so its fine.
Dollars will become the new cents, cents will be retired, and instead of dollars, they’ll be gigas.
Not necessarily. Countries strike zeroes from their currencies every now and then. This is the norm in case of hyperinflation. In the past there was the Weimar Republic, Turkey, Brazil. A more recent example is Venezuela. In these cases absolutely all the amounts, get divided by 1,000, 10,000. 100,000, or a multiple of 10. A product that has the price of $10,000 becomes $10, but your $10,000 also becomes $10. So, you still pay the same, until the price goes up again. But this makes life easier to all involved for a while.
Yes inflation can cause this. New efficiencies found in the system could cause the cost of milk to become cheaper however the changes would need to be very effective and rapid for us to see the value go down. Typically, supermarkets work very hard to keep staples like milk and bread low as customers often make their decisions on where to buy on those items. They make profit on other items.
There could also be a redenomination: the government could take a 0 of everything to make the numbers more reasonable. That is unlikely to happen though for a variety of reasons.
Yes. In 1900, a half gallon of milk cost 13 cents. Not 13 dollars, 13 cents. A pound of butter was twice that, at 26 cents, and a 10lbs bag of potatoes cost 14 cents. You might think “wow, they must’ve been stuffed!”, but no; they also made a lot less money. In fact, these goods are generally *cheaper* today than they were back then, when taken as a % of someone’s weekly paycheck.
The overall answer is yes, but the complicating factor is that different goods experience inflation at wildly different rates. Goods that require more “people” involvement tend to be experience more inflation, while goods thay require less “people” involvement experience less.
Assuming milk is in the latter category, it may take quite a bit longer to hit that price than overall price levels would indicate.
A good example of this is the TV market. TVs are insanely cheaper than they were in the 90s, even ignoring huge jumps in quality and screen size. TV prices have gone down even as overall price levels have gone up.
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