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Is Inflation Good Or Bad? – Forbes Advisor – Forbes

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Prices are rising from the grocery store to the …….

Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors’ opinions or evaluations.

Prices are rising from the grocery store to the gas station. According to the consumer price index (CPI), the chief measure of inflation in the U.S., prices increased 8.5% over the prior 12 months in July.

While higher prices make it more challenging for Americans to afford everyday essentials, inflation isn’t always necessarily bad. In some cases, inflation can be a good thing for the economy.

The Impact of Inflation

Inflation is the word that economists use to describe the gradual rise in prices throughout an economy.

In the U.S., economists use indexes like the CPI, which measures the change in prices paid by consumers for housing, food and fuel, or the personal consumption expenditures price index (PCE) to measure how much prices change over time.

When inflation rises, dollars are worth less than they were in the past. As a result, people have less purchasing power and need to increase their incomes to maintain the standard of living they’re used to.

Let’s say your take-home pay was $5,000 in July 2012. To maintain your standard of living in 2022, you’d have to earn $6,352 today. (For more calculations like this one, check out our inflation calculator to see how much inflation impacts your income.)

Inflation vs. Deflation

While inflation may decrease the purchasing power of your dollars over time, economists generally believe that a low, steady level of inflation is necessary to drive economic growth.

How can inflation be a good thing? One way to look at this question is to consider the opposite of inflation: Gradual price decreases across the economy are known as deflation.

When an economy experiences deflation, the prices of goods and services fall and the value of money grows. As a result, consumers can purchase more items and services with the same amount of money as before

Sounds great, right? The trouble is that some negative repercussions come with deflation.

Deflation signals falling demand for goods and services and increasing supply, which drives prices lower. This may indicate that consumers are pessimistic about the economy, spending less money, and holding on to their cash.

Over time, deflation undercuts the production of goods and services, leading to layoffs and increasing unemployment. Some economists think that deflation is even more dangerous than inflation.

When Is Inflation a Good Thing?

Can inflation be a good thing? Surprisingly, yes. Some level of inflation is crucial for the economy.

The Federal Reserve …….

Source: https://www.forbes.com/advisor/investing/is-inflation-good-or-bad/

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