Inflation. Imagine this. You go to the gas station to fill up your 2017 Audi Q5 with diesel, but when you finish, the price is $134.00. But last time the car was filled up, in 2024, it was $126.00. How did the price go up? That is the power of inflation.
Inflation is a horrible thing, a scary, financial thing. Many people don’t know, or don’t care about inflation, so we should publicize it and make it known to the whole entire world.
What is Inflation?
Inflation is a money term where the value of money goes down, but the price of things goes up. Your money will get you less, so you might need more money to buy groceries than previously, because of inflation. Inflation affects everybody, from homeless people to Rich billionaires. If Inflation goes too far, prices and numbers may skyrocket, and the Government will have a very hard time stopping it. A common example is Zimbabwe. One USD is 322 Zimbabwean Dollars. Because of inflation, numbers have shot up, and the Government hasn’t been able to keep it down.
Types of Inflation
If people thought there was one type of inflation, they would be wrong. There are 2 main types of inflation, cost-push inflation and demand-pull inflation, but there is also another called built-in inflation, which is a cycle itself, and a much rarer type called hyperinflation.
Cost-push inflation is when factors like higher wages, increased raw material prices or more energy costs lead to higher prices. This pushes the economy price upwards, hitting the supply side of the economy rather than the demand. A real-world example would be the 1970s oil crisis, where OPEC had a decision to increase the prices of fuel. This resulted in increased prices for transportation and goods.
Demand-pull inflation is when the demand for something overwhelms the economy because it cannot catch up. If it continues, it can result in higher prices, therefore, inflation. An example is the Vietnam War era, where the US Government increased spending for the war, so the economy toppled because there was more money than needed.
There is also built-in inflation, which is a cycle. Previous inflation will cause prices to rise, which results in workers demanding a higher wage to cover increased costs. This results in businesses trying to keep up by further increasing prices, and another round of wages comes in. This process goes over and over again, until an external force steps in. The thing about built in inflation is that every step reinforces the last.
And, very rarely, there is hyperinflation. Hyperinflation is when the inflation is very bad, with a 50% increase in price every month. It can be uncontrollable and can be very hard to track and keep down. Although this is very rare, it has happened a few times in history, like 1920s Germany.
Germany was trying to pay back the debt of the war back by printing money rapidly. It was so quick, that the currency at that time, the German Papiermark, lost its value. This resulted in the increase of Nazis extremist groups and the introduction of a new currency, the Rentenmark.
But the worst case of hyperinflation in 1945-1946 Hungary, when they tried to remake their economy after the devastation of WWII. It was so bad, prices doubled every 15 hours. They had a peak rate of 41,900,000,000,000,000%, or 41.9 quadrillion percent in July 1946.
Inflation, Deflation and Stagflation
Inflation is the opposite of deflation. Deflation is a decrease in the price of products, which means that people’s money can buy more. If companies find ways to make more efficient methods to produce products, they often decrease the price, causing deflation. Although it sounds good, it isn’t when viewed by economists. It often means decrease in demand and a high unemployment risk.
A real-world example is Japan’s “Lost Decade”, where after a period of fast-moving economic growth in the 1980s, a big bubble in the value of land and resources burst. Everyone thought the value of land wouldn’t stop growing, so they kept buying expensive things like expensive houses, cars and shares in big companies. But the bubble burst, and the price of the things people had bought crashed, and people lost money in the companies they invested in. Because people thought they would lose their jobs, they spent less money and prices went down, hence deflation. It was called the “Lost Decade” because the economy didn’t progress much, and people’s incomes stayed pretty much the same.
Stagflation is a huge problem where high prices (inflation) is mixed with slow or no job growth (stagnation) and unemployment. It’s three bad problems, battling each other at the same time. Stagflation is rare, but that doesn’t stop it from being an economic threat.
A real-world example is again, the 1970s oil crisis. OPEC caused the oil prices to skyrocket, reaching prices of $1.00, or $4.45 in today’s money. This increased the price of transportation, production and everyday goods and services (cost-push inflation). Prices went up and the economic growth slowed down drastically, and companies had to choose between cutting people’s job or raising prices. And today, OPEC owns 80% of the world’s fuel.
The Great Depression from an economist’s view
The Great Depression was a tragedy in the US Stock Market between 1929 and 1939. It happened because the Stock Market crashed, due to people borrowing money to invest, which made the market vulnerable. The government increased interest rates so people would stop borrowing money.
But the real accident started when the Wall Street Stock Market crashed. The prices of stocks went down rapidly, and people started selling their stocks in fear they would lose money. Starting on October 24th (Black Thursday), It started again on October 29th (Black Tuesday). As people panicked, banks were overwhelmed with the amount of people withdrawing their savings. Because of bad loans, many banks failed, and many people sank into poverty.
Many businesses closed, and demand reduced. This led to slower production, influencing poverty, which in turn led to the increase of Extremist parties, like Adolf Hitler’s Nazi party, who were unhappy with the outcome of the events. The first countries to fall were the U.S., the UK and Germany, which had the highest rate of unemployment in the decade.
It was so bad, that Al Capone, the gangster himself, opened a soup kitchen in 1930 that gave out free soup, coffee and doughnuts out to the poor. He himself served out the food. Although it was for his mental image so the public wouldn’t see his badness, it was still a good act of kindness and helping the needy.
The Great Depression ended in 1939, when the US sent out their men to fight in WWII against the Nazis over inn Germany. While men were away, women became the workforce and the sole reason the market ran. The war required massive spending on transport, attack ammo and other requirements. It increased growth and helped people to earn money. By the end of the war, the US had a fully functioning economy and market.
Inflation is still a massive problem around the world which harms millions of families all over the world. No one is safe from this problem, but if we work together and fight, we can help slow down inflation and stop it for a while. If Governments can raise interest rates, people will stop spending so much. Truth is, a big car or a private jet is all it takes to anger the economy.
By: Bhavik Doranala
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