Your perception that a dollar doesn’t go as far as it formerly did is accurate. Inflation, which is the progressive erosion of the purchasing power of your money over time, is the cause.
How Does Inflation Work?
Price increases throughout the economy causing inflation, which reduces the value of your money purchasing power. For instance, the average price of a cinema ticket in 1980 was $2.89. The average cost of a movie ticket increased to $9.16 in 2019. In 2019, a $10 bill could buy two less movie tickets than it would have nearly four decades earlier.
However, don’t consider inflation as simply increasing costs for a single good or service. A country’s overall economy may experience inflation.
Although it can be discouraging to realize that your money is depreciating, most economists view a tiny amount of inflation as a positive indicator of a robust economy. A mild inflation rate stimulates you to invest or use your money now rather than stowing it away and watching it lose value.
When both inflation and a nation’s currency’s value fall quickly, hyperinflation is the result. According to economists, hyperinflation occurs when the monthly price increases by at least 50%. Hyperinflation has occasionally occurred in the past during civil unrest, war, or when regimes have been overthrown, effectively devaluing money.
Stagflation happens when a country’s unemployment rate is on the rise while inflation stays high. Consumer demand typically declines as people manage their expenditures more carefully when unemployment rises. Your purchasing power is rebalanced as a result of the decline in demand, which lowers prices.
However, when stagflation takes place, prices stay high even while consumer spending falls, making it more and more expensive to purchase the same products.
Deflation is the term for a decrease in prices across all economic sectors or the overall economy. The ability to purchase more for less money tomorrow may seem appealing, but experts caution that deflation can be even more harmful to an economy than unrestrained inflation.
When deflation sets in, buyers put off current purchases in anticipation of larger price drops in the future. Deflation can reduce or even stop economic growth if it is allowed to continue, which would destroy wages and paralyze an economy.
The Canadian Inflation Rate rose to 8.1% in June
According to Statistics Canada, Canada’s inflation rate increased to 8.1% last month, marking the biggest yearly rise in the cost of living in decades.
According to the data agency, gasoline pump prices increased by 54.6% compared to the same month last year, which was the highest single factor in the overall rate of increase.
Food costs, which increased by 8.8% over the previous year, have been a significant contributor to inflation this year. Even though it is the same rate of growth as the previous month, economists say it is still too early to declare whether or not food prices have peaked.
What Causes Inflation?
There are two basic factors that might contribute to inflation: cost-push inflation and demand-pull inflation. Both refer back to supply and demand, the cornerstones of economics.
Demand-pull Inflation occurs when the demand for goods or services rises but supply is constant, thereby driving up prices.
There are various ways to trigger demand-pull inflation. In a strong economy, both individuals and businesses see rising profits. Consumers now have more purchasing power than they did previously, which increases competition for already-existing commodities and drives up prices even while businesses try to increase output. On a lower scale, the sudden popularity of some products might lead to demand-pull inflation.
When the supply of goods or services is restricted in any way but demand is constant, prices will rise. The ability of businesses to create enough of a particular commodity to meet consumer demand is typically hampered by some form of external event, such as a natural disaster. This enables them to increase prices, leading to inflation.
Consider the price of oil, for instance. To fill up your car, you need a particular quantity of gas. Gas prices increase when trade treaties or natural disasters significantly cut the oil supply because demand is essentially stable even as supply declines.
How to Live During Inflation
- By analyzing your consumption, you can lower your daily costs.
- Review your spending plan.
- Buy ahead of time
- Obtain a raise or increase your income with a side business.
- Make allowance for investing in your budget.
- Spend wisely
We can’t run away from inflation, but we can learn to live around it. One of the challenges an average Canadian can face is to manage debt in the face of rising inflation. It’s important to understand the game and play it well by speaking with a debt expert. There are various debt reduction strategies and debt solution options available in Ontario, such as, Consumer Proposal, Debt Consolidation Loans, Debt Settlement, Bankruptcy etc. Knowing which one to opt for might be a bit of a challenge, but don’t worry. That’s why we’re here for you at EmpireOne Credit. We’d guide you through the perfect option to manage your debt and enjoy financial freedom. Our debt experts are trained and we offer friendly and free consultation. Book one with us today.