Inflation

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While it is easy to measure the price change of individual products over time, human need extends beyond these one or two products. Individuals need a large and diverse set of products and a wide range of services to enjoy a comfortable life. These include goods such as food grains, metals, fuels, utilities such as electricity and transportation, and services such as health care, entertainment, and labor. Inflation aims to measure the impact of price changes on a diverse range of products and services and allows for a single representative value over time. 

Have you ever noticed inflation because of your expenses? Do you think the dollar exchange rate is a sign of inflation too?

When a currency loses value when prices go up, buying fewer goods and services, this loss of purchasing power impacts the general public's cost of living, ultimately leading to a reduction in economic growth. The consensus among economists is that persistent inflation occurs when a country's money supply growth exceeds its economic growth rate. To counter it, a country's appropriate monetary authority, such as a central bank, will take the necessary steps to manage the money supply and credit to keep inflation within limits. This financial move allows and ensures the smooth operation of the economy. 

What do you do to have sound finances even when there is inflation?

Conceptually, monetarism is a popular theory that explains the relationship between inflation and the money supply of an economy. For example, after the Spanish conquests of the Aztec and Inca empires, large amounts of gold and silver flowed into the Spanish and European economies. As the money supply increased rapidly, the monetary price value fell, contributing to the rapid increase in price. 

Is it ok for families when inflation increases the price of basic food and services? What can families do to protect themselves from inflation?

An increase in the money supply is the cause of inflation, although inflation can manifest itself through different mechanisms in the economy. Monetary authorities can increase the money supply by printing and giving more money to individuals. But this creates a devaluation of legal tender money. Venezuela is an example of a country where the value of the money has fallen so bad that a person has to pay 14,600,000 bolivars to buy a chicken.

Can one day our governments give everyone in their country food for free?

In many countries, people can save money in government bonds that pay enough interest to counter inflation. This helps because if you save one thousand pesos and keep them in the bank for a year, you might get less money due to inflation, but if you save your money in government bonds, the interest paid to you helps avoid losing money due to inflation. 

Do you have a savings account? Are your finances excellent, good or bad?