what does 7.9% inflation mean? Is that the percentage the currency loses during one month?
In: 6
It’s basically the amount that a selection of goods and service chosen to reflect everyday purchasing rises in a year. Your currency – which is valued against other currencies may not have changed at all – though a devaluing currency can cause inflation since foreign imports become more expensive.
It is on average how much prices for the goods people buy go up in price in a year, so if one year you spend $10,000 on food electricity telephone bills etc. and inflation is at 7.9% you may have to spend $10,790 next year to buy the same amount of goods and services.
Inflation typically looks at year over year changes, so that number would represent the increase in prices in February vs. February 2021, not Jan vs. February.
It means that the average cost of everything has increased 7.9% over what they were this time last year. So if you went to the grocery store or on a shopping spree last February and paid $1000, you would have to pay $1079 for the exact same stuff now.
Currency’s purpose is to hold value for future goods or services. You go to work and they pay you in cash, then you go somewhere else and buy something. In the time between when you get paid the money, and you use the money, the amount of stuff the money can buy can change.
You don’t really work for money, you work for the things money buys, to facilitate that, we invented money.
But we can’t really measure this directly very easily, so we use a proxy. The price difference between a basket of goods today and a basket of goods at some period in the past like a month or a year. In this case, the basket of goods today is 7.9% higher than it was in the past period.
What causes it is still up for debate. The communists think it’s corporate greed. The keynesians think it’s cost push or demand pull. The monetarists think it’s the money supply. The Austrians know it’s government interference.
It means currency has been devalued, your money is worth less. Inflation can be calculated for any time frame.
A good yard stick which people can understand with inflation is how long it would take for prices to double.
At 2.5% per year it would take 28 years for prices to double
At 20.4% prices would double approx every 4 years
The highest recorded inflation was 29500% during Germanys Weimar Republic meaning prices doubled every 33 hours.
https://metinmediamath.wordpress.com/2013/11/11/inflation-how-long-does-it-take-for-prices-to-double/
*Edit to add that this is for the U.S.
To elaborate a little on the correct answers already provided, it helps to understand how they determine inflation.
The inflation numbers given are based on a survey of items from categories that are deemed “representative” of the whole. This is fairly accurate overall, but does include input for items that people aren’t nearly as concerned with as others. The Bureau of Labor Statistics does apply weighting to the numbers gathered for items to attempt to balance out some of these issues. After all, a price spike on luxury jewelry isn’t necessarily indicative of the currency losing value if all other prices are remaining pretty steady. And since its something people don’t buy often it shouldn’t be weighed similar to a price spike in gasoline or electricity.
Items included in the Consumer Price Index by the Bureau of Labor Statistics in the U.S. for determining inflation include (nowhere near inclusive, they survey a ton of stuff, but its still nowhere near all available products and services):
Household furnishings and supplies
Furniture
Appliances
Clocks, Lamps, Decorative items
Indoor plants and flowers
Clothing
Jewelry & Watches
Toys
Recreational Reading Materials
Alcoholic beverages
Tobacco products
Housing
Foods
Utilities
You get the picture. Depending on what arena you are looking at, the inflation rate can be vastly different than the overall averaged rate. The current inflation for energy over the last year is at 25.6%. All items except food and energy is at 6.4%. Individual categories/items can have actually deflated while the overall average is inflating.
If you are really curious about what the numbers are for specific items or months you can check out their website, the data is readily available and covers inflation month to month (so inflation from January 2022 to Febuary 2022) as well as year to year (January 2021 compared to January 2022).
[https://www.bls.gov/cpi/](https://www.bls.gov/cpi/)
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