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
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”)
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