Inflation: Taxation without Legislation?

Ever wonder what inflation really is? I mean, you hear it in the news, your hear people talking but what is it? Inflation is a general increase in prices and fall in the purchasing value of money. Over the years inflation has impacted different economies all over the world such as the U.S., Europe, Asia, and Germany. From first-hand experience many Americans have lived through low, moderate, and high inflation. More recently, it has affected the United States and we have been experiencing a rate of around 4%. Having low inflation is the key to economic growth here in the U.S. It gives confidence within the system to invest more and for firms to advance within the economy.

Many assumptions and predictions are made upon the issue of the below average inflation. But, monetary policy plays a significant role in inflation as it dates back into the 1970’s when prices reached an all time high of ten percent annually. This problem in the system raged all of America to borrow lump sum amounts of money and spend it quickly. There is an assumption that the value of money is going to increase, so what a dollar is worth today wouldn’t matter what it is going to be worth in the future. Regarding that assumption, one would say futuristic goals of planning and investing in the corporate world is depressed and would have to invest more money into funds such as IRA’S, 401-K, and many more accounts for retirement.

If I haven’t learned anything else of substance in economics, there is one thing. That is that people make assumptions depending on their perspective of the world. On the brighter side of being optimistic when dealing with inflation; the majority of fed officials are for sure to see that inflation will rise. Just as employers seeking workers are forced to offer higher wages than normal, there will also be an increase in value for everything else.

The goal is to keep inflation in the 2 percent bracket, which is average, nothing less or more. Lower inflation could lead us closer to deflation and having higher inflation could lead us to a decline in the economy, a possible recession; forcing the economy to be unstable, and higher costs could occur. A simple example is how prices change in the market all the time so different firms like stores and restaurants reprint tags and menus to update their prices in order to stay in a competitive market and go with the flow of the economy.

Inflation plays a great role in the economic market and consumer spending. It’s important to pay attention to the trends that directly affect us and our money.

Talk to you next week!

FW