The inflation rate is the sustained increase in the prices of goods and services that consumers purchase. It decreases the purchasing power of your money, meaning you can buy less with your current income over time.
Inflation can be caused by many factors. For example, when there’s a lot of money in the economy (which is also known as monetary inflation), it can lead to higher prices. This type of inflation is called demand-pull inflation, and it can be caused by a rise in government spending or a central bank printing too much money. It can also be triggered by events that raise production costs, like natural disasters or wars.
Another type of inflation is cost-push inflation, which happens when the prices of raw materials that companies use to make their products rise. This often has to do with higher oil or metal prices, and the businesses that consume those raw materials may pass those increases on to their customers.
Keeping an eye on the inflation rate can help you figure out how far your paycheck will stretch in the future, which is important when making financial plans for retirement or other goals. It’s also helpful to factor in an expected inflation rate when saving up for expenses, so you know how big of a savings plan you need to set aside. You can do this by using an inflation calculator, which can give you a range of potential inflation rates for different scenarios.
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