If you believe that the dollar’s value is not doing well like it used to, you are not alone. The reason for this thought of yours is inflation, which means the gradual increase in prices and the slow decline in the purchasing power of money with time. In order to take care of your investments in any asset class, you should know how inflation works to make better-informed choices.
Kavan Choksi Singapore – Understand how inflation affects your investments and money
Kavan Choksi Singapore is an esteemed business and finance expert with a deep passion for fine arts across the globe. He guides businesses with their investments during market stress so that they can earn consistent returns with their money. He states inflation takes place when the prices rise in the economy, and the purchasing power of your money is decreased. For example, take 1980, the cost of one movie ticket was $2.89. In 2019, the cost of the same movie ticket rose to $9.16. If you have saved a $10 bill from the 1980s, it will allow you to purchase two tickets for a movie at that time.
Inflation spreads across the whole economy
The above is just an example for one item but do not assume that inflation is limited to one item. It refers to the wide increase in prices across a sector or industry, like the energy business or the automotive industry. In short, when the prices in the economy rise, this is inflation!
Who measures the rate of inflation in the USA?
The primary measures of inflation in the USA are the Consumer Price Index (CPI), the Personal Consumption Expenditures Price Index (PCE), and the Producer Price Index (PPI). All of them deploy varying measures for tracking down the change in the prices that consumers pay, and producers get from industries in the country.
Some people get frustrated when they think that the dollar is losing value. However, there are some economists that believe that a bit of inflation is a sign of a good and healthy economy. When the levels of inflation are moderate, it encourages you to invest or spend money rather than tuck it away under a mattress to watch it lose its value.
The dangerous effects of inflation on an economy if unchecked
Kavan Choksi Singapore states that inflation can be adverse for an economy if you allow it to rise in an uncontrolled manner. Suppose the inflation in the economy is not checked. In that case, it can topple a nation, as it did in Venezuela, where its inflation rate crosses 1,00,000% a month, causing the economy to collapse completely. Many citizens of the nation were forced to flee the nation.
Deflation, on the other hand, is the opposite of inflation, where the prices across the economy decline. Though this seems nice to read, as you can buy more with less, economists believe that unchecked deflation is even worse than inflation and can be dangerous for an economy.