Inflation is a debasement of the currency, as mentioned in a previous post.
Inflation causes existing available money to be worth less. With a fixed dollar amount, inflation reduces our financial strength.
Looking at it from another perspective, Milton Friedman said Inflation is taxation without legislation.
How Inflation is Used
“We made a tradeoff in 2020: We’re going to save the economy and save people’s jobs by pumping trillions into the economy,” Aswath Damodaran, a professor of finance at New York University said. “This inflation is the tradeoff. They were effectively delaying the pain that COVID brought to the global economy.”
Uses of Inflation
It’s no secret…The more things change, the more they stay the same. Inflation is an excuse to raise prices. Also known as Greedflation. As mentioned, here, here, here, and here.
Severity
“Inflation is poison for incumbents.”
When inflation reduces the value of currency, it is the tendency for populations to desire drastic change, such as a strongman as a solution, niceties be damned.
Target
With central banks targeting an ideal inflation rate (say 2%), a cumulative increase in prices seems inevitable. “For example, successfully hitting a target of +2% each year for 40 years would cause the price of a $100 basket of goods to rise to $220.80.”
I don’t know about you, but having the value of my money decrease in value by any amount, even 2%, every year is not appealing. The result of this kind of situation is political clashes. Workers agitate for increases in salaries which is resisted by management. And so on.
Consumer Actions
If I needed a mortgage or loan, I would insist on a fixed-rate loan. I don’t want fluctating interest rates to sink me.
We actively look for deals and discounts. When something is on sale, we stock up, depending on the product. If the product is a shelf-stable item, I might buy ten or twenty. If an item is available in bulk at a lower price, I will buy in quantity.
For those who invest, investing in companies that have pricing power, can prevent being left behind as prices rise.
Your take? Let me know here.
Illustrated in a Untitled Japanese Print by Hishikawa Moronobu, 菱川師宣, 1683. Courtesy Ukiyo-e.org.
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