what does 7.9% inflation mean? Is that the percentage the currency loses during one month?

122 views
0

what does 7.9% inflation mean? Is that the percentage the currency loses during one month?

In: 6

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.

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.

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.