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How Does Inflation Impact My Life? Impact on You and the Economy- Emma Stauffer

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How Does Inflation Impact My Life? Impact on You and the Economy- Emma Stauffer

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Inflation is very impactful on people's lives. One is that it means you have to pay higher prices for the same goods and services. It can help you though if it is income inflation, or asset inflation, which is in housing or stocks, if you own the asset before inflation. It can also affect things like gas prices and house values.
https://www.thebalance.com/inflation-impact-on-economy-3306102

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Inflation is a sustained increase in the prices of goods and services. the tie to inflation to our currency is that if inflation rises than every dollar you have can buy less.

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Inflation is defined as a sustained increase in the general level of prices for goods and services in a county, and is measured as an annual percentage change. Under conditions of inflation, the prices of things rise over time. Put differently, as inflation rises, every dollar you own buys a smaller percentage of a good or service. When prices rise, and alternatively when the value of money falls you have inflation.

The value of a dollar (or any unit of money) is expressed in terms of its purchasing power, which is the amount of real, tangible goods or actual services that money can buy at a moment in time. When inflation goes up, there is a decline in the purchasing power of money. For example, if the inflation rate is 2% annually, then theoretically a $1 pack of gum will cost $1.02 in a year. After inflation, your dollar does not go as far as it did in the past. This why a pack of gum cost just $0.05 in the 1940's - the price has risen, or from a different perspective, the value of the dollar has declined. In recent years, most developed countries have attempted to sustain an inflation rate of 2-3% by using monetary policy tools put to use by central banks. This general form of monetary policy is known as inflation targeting.

Causes of Inflation

There is no single theory for the cause of inflation that is universally agreed upon by economists and academics, but there are a few hypotheses that are commonly held.

Demand-Pull Inflation - Inflation is caused by the overall increase in demand for goods and services, which bids up their prices. This theory can be summarized as "too much money chasing too few goods". In other words, if demand is growing faster than supply, prices will increase. This usually occurs in rapidly growing economies. This theory is often promoted by the Keynesian school of economics.

Cost-Push Inflation - Inflation is caused when companies' costs of production go up. When this happens, they need to increase prices to maintain their profit margins. Increased costs can include things such as wages, taxes, or increased costs of natural resources or imports.

Monetary Inflation - Inflation is caused by an oversupply of money in the economy. Just like any other commodity, the prices of things are determined by their supply and demand. If there is too much supply, the price of that thing goes down. If that thing is money, and too much supply of money makes its value go down, the result is that the prices of everything else priced in dollars must go up! This theory is often promoted by the "Monetarist" school of economics.

Costs of Inflation

Inflation affects different people in different ways, with some benefiting from its effects at the expense of some who lose out. It also depends on whether changes to the rate of inflation are anticipated or unanticipated. If the inflation rate corresponds to what the majority of people are expecting (anticipated inflation), then we can compensate and the impact isn't necessarily as severe. For example, banks can vary their interest rates and workers can negotiate contracts that include automatic wage hikes as prices go up.

Here is a brief account of the typical winners and losers from inflation:

Creditors (lenders) lose and debtors (borrowers) gain under inflation. For example, suppose a bank issues you a 30-year mortgage to buy a house at a fixed interest rate of 5% per year, costing $1,000 per month. As inflation rises, the "cost" of that $1,000 per month decreases, which benefits the homeowner, especially if the rate of inflation exceeds the interest rate on the loan.

Inflation hurts savers since a dollar saved will be worth less in the future. Unless the money is saved in an account that pays an interest rate at or above the rate of inflation, the purchasing power of savings will erode. This phenomenon is sometimes called "cash-drag."

Workers with fixed salaries or contracts that do not adjust with inflation will be hurt as the buying power of their incomes stay the same relative to rising prices.

Similarly, people living off a fixed-income, such as those below the poverty line, retirees or annuitants, see a decline in their purchasing power and, consequently, their standard of living.

Landlords benefit, if they have a fixed mortgage (or no mortgage) as they are able to raise the rent more each year.

Uncertainty about what will happen next makes corporations and consumers less likely to spend. This hurts economic output in the long run.

The entire economy must absorb repricing costs (menu costs) as price lists, labels, menus and more have to be updated.

If the domestic inflation rate is greater than that of other countries, domestic products become less competitive.

Variations on the Theme of Inflation

There are several variations on the theme of inflation.

Deflation is when the general level of prices are falling. It is the opposite effect of inflation. Deflation tends to occur more rarely and for shorter periods of time than inflation. Deflation occurs typically during times of recession or economic crisis and can lead to deep economic crises including depression. The reason for this is the so-called deflationary spiral: when prices are going down, why would you spend your money today, when each dollar will be more valuable tomorrow? And why spend tomorrow when each dollar can buy more the day after? The result is that people stop spending and hoard their money in anticipation of prices falling even further. If money is being hoarded, it isn't being spent, so business profits collapse and people are laid off. Increasing unemployment leaves the economy with even less spending, and the spiral continues.

Disinflation is a condition where inflation is still positive, but the rate of inflation is decreasing - for example from +3% to +2%.

Hyperinflation is unusually rapid inflation, typically more than 50% in a single month. In extreme cases, this inflation gone awry can lead to the breakdown of a nation's monetary system or even its economy. One of the most notable examples of hyperinflation occurred in Germany in 1923, when prices rose 2,500% in one month! Likewise, in Zimbabwe, hyperinflation led to Z$100 trillion bills being printed that were worth only a few U.S. dollars. Hyperinflations have also famously occurred in Hungary and Argentina in the 20 th century.

Stagflation is the rare combination of high unemployment and economic stagnation along with high rates of inflation. This happened in industrialized countries during the 1970s, when a rocky economy was confronted with OPEC raising oil prices resulting in a demand shock for oil. This sent the price of oil - and all of the products and services that use oil as an input - higher, even as the economy slackened.

People often complain when prices go up, but they often ignore the fact that wages should be rising as well. The question shouldn't be whether inflation is rising, but whether it's rising at a quicker pace than your wages. A modest inflation is a sign that an economy is growing. In some situations, little inflation can be just as bad as high inflation. The lack of inflation may be an indication that the economy is weakening. As you can see, it's not so easy to label inflation as either good or bad - it depends on the overall economy as well as your personal situation.

Inflation: How Is It Measured?

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FindTheData | Graphiq Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every dollar you own buys a smaller percentage of a good or service.

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Inflation Or Deflation: Which Is The Greater Risk? - Tyler Younghans 

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Inflation Or Deflation: Which Is The Greater Risk? - Tyler Younghans 

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https://www.investopedia.com/ask/answers/12/inflation-interest-rate-relationship.asp
This article is about how In general, as interest rates are lowered, more people are able to borrow more money. The result is that consumers have more money to spend, causing the economy to grow and inflation to increase. But when it's to deflated, business run out of money and then banks run out leading to events like the great depression.

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Inflation Or Deflation: Which is the greater risk? - Ella Ornelas

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Inflation Or Deflation: Which is the greater risk? - Ella Ornelas

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Inflation- Inflation can be good because consumers believe prices will rise leading them to buy things now instead of waiting until later. This in many ways keeps our economy running.
Deflation- Deflation consists of lowering the prices of goods, because of this consumers hoard their money with the thought that the product will become cheaper later. This results in businesses not making any money and in return they have to fire employees to compensate.
Finial answer- Deflation is the greater risk because it is the more destructive force. While inflation isn't always good it keeps the economy running while deflation tears it apart.

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Most people understand that a drastic increase in a country's money supply will produce inflation. This is because if the monetary supply increases faster than demand, the value of each unit of currency will fall. To put it another way, if the supply of money were to grow faster than the demand for it, the result would be too many dollars chasing too few goods which is the very definition of inflation. Despite the Fed's massive capital infusion, why is inflation only 1.4%? This is the precise question we will attempt to answer in this article.
Measuring the Money Supply
The U.S. money supply is measured by M1, M2 and M3. M1 includes all cash, currency, checking and N.O.W. accounts. M2 includes M1 plus time deposits (CD's), savings deposits and non-institutional money market funds. Hence, M2 is more broad. M3 includes M2 plus longer term deposits, however, as of 2006, the Fed no longer tracks M3. The money supply must keep pace with the increase in the population and the expansion of the economy. If the money supply were to rise too fast inflation can result. Conversely, if the increase in the money supply is not enough, deflation may occur. Therefore, keeping a close eye on the amount of money in the system is crucial.
Inflation
Inflation benefits some and hurts others. Let say you borrowed money from your local bank and promised to pay it back over a ten-year period. If inflation were to rise during this term each payment you make to the bank has less purchasing power than it did when you initiated the loan. Hence, inflation is good for the borrower and bad for the lender. A low to moderate amount of inflation is also good for an economy. This is because if consumers believe prices will rise they will purchase now rather than wait and pay more in the future. Therefore, it can be said that inflation helps keep the wheels of an economy turning.

Our economy hit bottom in mid 2009. Inflation, as measured by the change in the trailing 12 month period, was negative through the first 10 months of 2009. In September 2011 it peaked at 3.9% and has been trending lower since then. Actually, this past April inflation was a mere 1.1%.

The Fed is very concerned about the rate of inflation. In fact, stable prices is one of their mandates. Although the Fed is keeping an eye on inflation, at the present time, they have both eyes fixed on the possibility of deflation. Why? Let's discuss this now.
Deflation
Deflation can be defined as the decrease in the general price level of goods and services. During the Great Depression deflation was present most of the time. Deflation results in an "increase" in the value of a currency, and as a result, it encourages individuals and corporations to "hoard" their money. After all, why spend money now if prices will be lower in the future? During deflationary periods demand falls as individuals and businesses wait for lower prices. This translates into a reduction in corporate profits, a contraction in the labor force, and lower wages. The end result is a further decline in demand.

Lower prices are not necessarily bad in the short term. But if deflation persists, as it has in Japan, it can create a deflationary spiral that can cause or aggravate a recession. And, if deflation persists long enough, a depression may ensue. Therefore, the Fed is keenly aware of this and is doing everything they can to combat it.
The Fed's Response
Because deflation is considered to be such a destructive force, and since Bernanke is a student of the depression and acutely familiar with the Japanese deflationary spiral, the Fed has embarked on QEI, QEII, Operation Twist (QEIII?), and QE Forever, an $85 billion dollar per month monetary expansion. The idea is to pump so much liquidity into the system that the value of the dollar will decline and deflation will be defeated. However, as we have seen, even with such an excessive amount of monetary stimulus, inflation is still very low and the risk of deflation persists. The ace-in-the-hole here is the consumers' willingness to go on a spending spree as they did in the 20 years prior to the 2008 crisis. Therefore, it's important to keep tabs on such items as retail sales and durable goods.

Thus far, it appears that pumping an excessive amount of liquidity into the system has not translated into substantially higher demand. Yes, there have been some victories, and yes, we may indeed be on the road to recovery. But in my estimation we're not out of the woods quite yet.
Summary
Why is inflation so low despite the incredible expansion in the money supply? In short, demand is low and until it increases, we should expect more of the same. Hence, I would be greatly surprised if the Fed actually did begin to taper their QE program this year as they have suggested. Of course, if the economy were to really start humming, then tapering would be appropriate. However, there seems to be enough negative data to assume that the Fed will continue its course for a while longer.

Stay tuned and thanks for reading!

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Inflation Or Deflation: Which Is The Greater Risk?

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Most people understand that a drastic increase in a country's money supply will produce inflation. This is because if the monetary supply increases faster than demand, the value of each unit of currency will fall.

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Bailey Estes
https://www.economist.com/news/briefing/21627625-politicians-and-central-bankers-are-not-providing-world-inflation-it-needs-some

as inflation drops, slipping into deflation becomes ever easier. It is in that dangerous position that the world now stands.

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This article tells us about how the inflation rate has rised since 1914 to 2000. It provides us a graph for us to see how much the rate has gone up every year.

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Historical Inflation Rate- Annual Inflation rates from 1913 to the present |InflationData.com

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Annual inflation rates calculated to 2 decimal places every month since 1913. Based on the CPI-U from the Bureau of Labor Statistics

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Surging Gasoline Prices Push CPI Inflation Higher

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Surging Gasoline Prices Push CPI Inflation Higher

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https://www.forbes.com/sites/afontevecchia/2013/07/16/spiking-gasoline-prices-push-cpi-inflation-higher-but-weak-core-fuels-taper-uncertainty/#23fee63971ac
Cole Craven

Gasoline prices have been deflating at a slow rate lately, but one month held a inflation of 0.5%. After this inflation, the prices are still relatively low, but it will not go unnoticed. This is a consequence of the increased prices of gasoline. It could then lower the consumption rate and then hurt the gasoline industry. Any inconsistency can affect the economy in this area and inflation is dangerous.

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https://www.theatlantic.com/magazine/archive/2010/04/my-inflation-nightmare/307995/
This article is about how the price of gold keeps rising, but there is not much gold can do. It is too expensive for the tiny amount people put in there mouth or use as earrings/rings. Also that commercials about mortgage have been taken down and replaced for commercials about gold when mortgage is more important.

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To have inflation, there must be excess money supply circulating the market, increasing prices

Inflation is not when the prices of some things you often buy are rising. Things like supply, tax, tariffs and more can all cause the same impact. If only one thing (such as gas) is impacted but other assets (such as your mortgage) stay the same, it's not inflation

Inflation is not the same as the "cost of living." As seen above, prices fluctuate all the time

Some inflation is good, as it is much more preferable than deflation. It makes it hard to invest properly, when the purchasing power of money will be higher, and often happens during a recession. Lay-offs soon follow, even if prices overall drop.

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Amy Laws

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The Fed's QE-infinity policy has raised concerns of an impending inflation spike. To know whether such fears are warranted, it's important to understand what inflation is and what it is not.
What is inflation?
As Milton Friedman said, "Inflation is, always and everywhere, a monetary phenomenon." But what does that mean, really-a monetary phenomenon?

To have inflation, you must have an excess of money supply. But not just excess money supply-that money supply must be circulating in the economy, chasing overall prices on average higher.
Inflation is not ...
... when some prices of things you often buy are rising. Rising prices at the grocery store and the gas pump can be supremely irritating but not necessarily inflation.

Food and energy, driven by (notoriously volatile) commodity prices, can experience short-lived supply disruptions tied to weather, geopolitics, technology failures, etc. Taxes, tariffs, subsidies, trade quotas, etc., can also materially increase prices on certain food items and gasoline. But higher prices on certain items due to supply disruptions or bad policy have nothing to with money supply. And those shocks mostly likely don't chase overall prices on average higher, hence they aren't inflation. This may seem like semantics but isn't.

Let's see why, using an extreme example: Suppose a bizarre but isolated supply disruption spikes the price of gasoline 50%. Is that inflation? The easy answer is, if it's not tied to excess money supply, then no. But maybe it's hard to see why, so let's focus on the hypothetical impact on the total basket of goods one consumes.

The gas price increase is obvious-it piques you the 10 times a day you pass a gas station-whereas you write a mortgage or rent check once a month. Housing costs aren't impacted at all and are often a huge portion of most folks' budgets (and about 31% of the consumer price index-CPI). Medical costs, education and your Internet/cable/phone bill aren't impacted. Apparel and consumer electronics prices aren't impacted, and in fact, typically fall over time. Food prices aren't impacted. Now, transportation costs for food (apparel and consumer electronics, too) may rise, but the marginal gas increase gets spread over an entire truckload. Then, too, retailers may swallow a lot of that and/or change shipping methods, marketing or otherwise mitigate the increased price from one input. Airline travel may get costlier-but how much of your household budget is that? And airlines often use futures to smooth (naturally volatile) energy costs.

In this example, costlier gas perhaps puts upward pressure on certain prices and certainly is a huge aggravation but isn't inflation. (Mind you, when the supply disruption eases and gasoline prices fall again-as happens-that isn't deflation either.) And the same concept holds if other forms of supply disruptions, taxes, trade policy or other government tomfoolery increase prices on specific items-if they aren't tied to money supply and aren't chasing overall prices on average higher, it's not inflation. Now, nothing happens in a vaccuum. And some form of shock or other force pushing prices higher or lower might inspire a monetary policy response. And that response might overshoot somehow and cause higher inflation (or deflation). But still, it's the money supply doing the do, not the price of a narrow category.

Which brings me to my next point: Many central banks tend to focus on core measures of inflation which strip out food and energy prices. Why? Because every developed-world central bank has a mandate to manage inflation. Monetary policy isn't a perfect science and takes time to be felt. You don't want central banks jiggering every time a potentially short-lived spike (0r drop!) in inherently volatile commodities materially pushes on prices in narrow categories.
... perfectly synonymous with "cost of living."
Higher inflation likely puts upward pressure on your cost of living. And when thinking about future cost-of-living increases, inflation is a good place to start. But remember, inflation is an averaging. If inflation were perfectly flat, prices would still be moving-some rising, others falling.

How that impacts your cost of living will depend on whether you consume more of those categories that have tended to inflate faster (health care, energy, education) or slower (consumer electronics, apparel, cars, housing). (See the graph from Fisher Investments research, which shows price increases for categories included in CPI over the last 20 years.)

Many inflation indexes (like CPI) attempt to capture the average consumer experience. But your preferred consumption patterns may differ-maybe wildly.

See it this way: If food and energy costs make up 80% of your budget, and those prices increase materially, and you have little capability to adjust, your cost of living also rises. But that still may not be inflation.
... necessarily terrible.
Some inflation is good and fine. Central banks frequently target inflation rates, but the target is generally 2% or 3%, not 0%-because volatility is normal, and a little inflation is vastly preferably to a little deflation.

Deflation is when there's a dearth of money supply, and overall prices on average are falling. Falling prices might sound great! Except individuals and businesses tend to delay purchases-waiting for lower prices later. Moreover, long-term financing decisions are likely impacted by deflation. In a deflationary environment, dollars repaid to a creditor later have greater purchasing power than those borrowed today-a potential headwind against firms' borrowing to finance expansion. That can sap economic activity, and layoffs often follow. You tend to see deflation during recessions-and it can exacerbate a contraction.

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The Fed's QE-infinity policy has raised concerns of an impending inflation spike. To know whether such fears are warranted, it's important to understand what inflation is and what it is not. What is inflation? As Milton Friedman said, "Inflation is, always and everywhere, a monetary phenomenon." But what does that mean, really-a monetary phenomenon?

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"Why Don't Prices Decline During a Recession?" Ben Jones

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"Why Don't Prices Decline During a Recession?" Ben Jones

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https://www.thoughtco.com/why-prices-dont-drop-during-a-recession-1146306

During Recession, prices typically don't decline because there is more supply than there is demand. During an inflation, prices rise because there is more demand and less supply.

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What is Deflation and How can it be Prevented

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What is Deflation and How can it be Prevented

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https://www.thoughtco.com/deflation-definition-and-prevention-1146228
This article mostly defines deflation and the benefits and negative consequences it has. The article also talks about the different options the Federal Reserve has to influence the inflation rate.

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https://www.thebalance.com/are-inflation-rates-running-wild-2388612

This article talks about how the inflation is increasing at a steady rate and how for retirees it only really affects those of low income.
- Noah Price

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Why don't prices decline during a recession by Mike Moffatt  - Kendall Stowell 

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Why don't prices decline during a recession by Mike Moffatt  - Kendall Stowell 

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When the price of money goes up so do goods and in a boom we expect demand for goods to rise faster than supply . Conversely when there is a economic contraction supply initially outpaces demand . For wages people don't like to give pay cuts mostly the manager lay off before they do so . Do to deflation is the opposite of inflation the supply of money goes down the supply of goods goes up . The federal reserve has a table that list M1 , M2 , and M3 money supply .

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When there is an economic expansion, demand seems to outpace supply, particularly for goods and services that take time and major capital to increase supply. As a result, prices generally rise (or there is at least price pressure) and particularly for goods and services that cannot rapidly meet the increased demand such as housing in urban centers (relatively fixed supply), advanced education (takes time to expand/build new schools), but not cars because automotive plants can gear up pretty quickly.

Conversely, when there is an economic contraction (i.e. recession), supply initially outpaces demand. This would suggest that there would be downward pressure on prices, but prices for most goods and services don't go down and neither do wages. Why do prices and wages appear to be "sticky" in a downward direction?

For wages, corporate/human culture offer up a simple explanation- people don't like to give pay cuts... managers tend to lay off before they give pay cuts (though there exist some exceptions). That said, this doesn't explain why prices don't go down for most goods and services.

In Why Does Money Have Value, we saw that changes in the level of prices ( inflation) was due to a combination of the following four factors:

1. The supply of money goes up.

2. The supply of goods goes down.

3. Demand for money goes down.

4. Demand for goods goes up.

In a boom, we would expect that the demand for goods to rise faster than the supply.

All else being equal, we would expect factor 4 to outweigh factor 2 and the level of prices to rise. Since deflation is the opposite of inflation, deflation is due to a combination of the following four factors:

1. The supply of money goes down.

2. The supply of goods goes up.

3. Demand for money goes up.

4. Demand for goods goes down.

We would expect the demand for goods to decline faster than the supply, so factor 4 should outweigh factor 2, so all else being equal we should expect the level of prices to fall.

In A Beginner's Guide to Economic Indicators we saw that measures of inflation such as the Implicit Price Deflator for GDP are pro-cyclical coincident economics indicators, so the inflation rate is high during booms and low during recessions. The information above shows that the inflation rate should be higher in booms than in bursts, but why is the inflation rate still positive in recessions?

Different Situations, Different Results

The answer is that all else is not equal. The money supply is constantly expanding, so the economy has a consistent inflationary pressure given by factor 1. The Federal Reserve has a table listing the M1, M2, and M3 money supply. From Recession? Depression? we saw that during the worst recession America has experienced since World War II, from November 1973 to March 1975, real GDP fell by 4.9 percent. This would have caused deflation, except that the money supply rose rapidly during this period, with the seasonally adjusted M2 rising 16.5% and the seasonally adjusted M3 rising 24.4%.

Data from Economagic shows that the Consumer Price Index rose 14.68% during this severe recession. A recessionary period with a high inflation rate is known as stagflation, a concept made famous by Milton Friedman. While inflation rates are generally lower during recessions, we can still experience high levels of inflation through the growth of the money supply.

So the key point here is that while the inflation rate rises during a boom and falls during a recession, it generally does not go below zero due to a consistently increasing money supply. In addition, there may be consumer psychology-related factors that prevent prices from decreasing during a recession- more specifically, firms may be reluctant to decrease prices if they feel like customers will get upset when they increase prices back to their original levels at a later point in time.

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Why Don't Prices Decline During a Recession?

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When there is an economic expansion, demand seems to outpace supply, particularly for goods and services that take time and major capital to increase supply.

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Inflation or Deflation: Which is the Greater Risk? - Calvin G.

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Inflation or Deflation: Which is the Greater Risk? - Calvin G.

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Low amounts of inflation is usually good for the economy because it prompts people to buy now, because the price will be higher later, while deflation is usually a bad thing because it prompts people to store up money to buy products for cheaper later, if left unchecked, it can lead to further deflation and bring the economy into a depression.

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Most people understand that a drastic increase in a country's money supply will produce inflation. This is because if the monetary supply increases faster than demand, the value of each unit of currency will fall. To put it another way, if the supply of money were to grow faster than the demand for it, the result would be too many dollars chasing too few goods which is the very definition of inflation. Despite the Fed's massive capital infusion, why is inflation only 1.4%? This is the precise question we will attempt to answer in this article.
Measuring the Money Supply
The U.S. money supply is measured by M1, M2 and M3. M1 includes all cash, currency, checking and N.O.W. accounts. M2 includes M1 plus time deposits (CD's), savings deposits and non-institutional money market funds. Hence, M2 is more broad. M3 includes M2 plus longer term deposits, however, as of 2006, the Fed no longer tracks M3. The money supply must keep pace with the increase in the population and the expansion of the economy. If the money supply were to rise too fast inflation can result. Conversely, if the increase in the money supply is not enough, deflation may occur. Therefore, keeping a close eye on the amount of money in the system is crucial.
Inflation
Inflation benefits some and hurts others. Let say you borrowed money from your local bank and promised to pay it back over a ten-year period. If inflation were to rise during this term each payment you make to the bank has less purchasing power than it did when you initiated the loan. Hence, inflation is good for the borrower and bad for the lender. A low to moderate amount of inflation is also good for an economy. This is because if consumers believe prices will rise they will purchase now rather than wait and pay more in the future. Therefore, it can be said that inflation helps keep the wheels of an economy turning.

Our economy hit bottom in mid 2009. Inflation, as measured by the change in the trailing 12 month period, was negative through the first 10 months of 2009. In September 2011 it peaked at 3.9% and has been trending lower since then. Actually, this past April inflation was a mere 1.1%.

The Fed is very concerned about the rate of inflation. In fact, stable prices is one of their mandates. Although the Fed is keeping an eye on inflation, at the present time, they have both eyes fixed on the possibility of deflation. Why? Let's discuss this now.
Deflation
Deflation can be defined as the decrease in the general price level of goods and services. During the Great Depression deflation was present most of the time. Deflation results in an "increase" in the value of a currency, and as a result, it encourages individuals and corporations to "hoard" their money. After all, why spend money now if prices will be lower in the future? During deflationary periods demand falls as individuals and businesses wait for lower prices. This translates into a reduction in corporate profits, a contraction in the labor force, and lower wages. The end result is a further decline in demand.

Lower prices are not necessarily bad in the short term. But if deflation persists, as it has in Japan, it can create a deflationary spiral that can cause or aggravate a recession. And, if deflation persists long enough, a depression may ensue. Therefore, the Fed is keenly aware of this and is doing everything they can to combat it.
The Fed's Response
Because deflation is considered to be such a destructive force, and since Bernanke is a student of the depression and acutely familiar with the Japanese deflationary spiral, the Fed has embarked on QEI, QEII, Operation Twist (QEIII?), and QE Forever, an $85 billion dollar per month monetary expansion. The idea is to pump so much liquidity into the system that the value of the dollar will decline and deflation will be defeated. However, as we have seen, even with such an excessive amount of monetary stimulus, inflation is still very low and the risk of deflation persists. The ace-in-the-hole here is the consumers' willingness to go on a spending spree as they did in the 20 years prior to the 2008 crisis. Therefore, it's important to keep tabs on such items as retail sales and durable goods.

Thus far, it appears that pumping an excessive amount of liquidity into the system has not translated into substantially higher demand. Yes, there have been some victories, and yes, we may indeed be on the road to recovery. But in my estimation we're not out of the woods quite yet.
Summary
Why is inflation so low despite the incredible expansion in the money supply? In short, demand is low and until it increases, we should expect more of the same. Hence, I would be greatly surprised if the Fed actually did begin to taper their QE program this year as they have suggested. Of course, if the economy were to really start humming, then tapering would be appropriate. However, there seems to be enough negative data to assume that the Fed will continue its course for a while longer.

Stay tuned and thanks for reading!

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Inflation Or Deflation: Which Is The Greater Risk?

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Most people understand that a drastic increase in a country's money supply will produce inflation. This is because if the monetary supply increases faster than demand, the value of each unit of currency will fall.

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How to profit from inflation (Mack Dearing) 

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How to profit from inflation (Mack Dearing) 

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This article talks about the most common type of investments. These include ones like oil, stocks, goal, and real estate. There are pros and cons of investing and one of the cons being that investing is not a guaranteed way to make money however it is more about luck.

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Inflation is defined as a sustained increase in the price of goods and services. In an inflationary environment, a gallon of milk that once cost $3 may now cost $4. Over time, inflation erodes the value of a nation's currency. There are a variety of factors that influence inflation and arguments about its root cause, but for consumers and investors, the end result is the same. Prices rise.

But while rising prices are bad news for consumers, as it takes an ever-increasing amount of money to purchase the same basket of goods and services year after year, inflation can be quite profitable for investors.

The key to making money in an inflationary environment is to hold investments that increase in value at a rate in excess of the rate of inflation.

Inflation-Sensitive Investments

A number of investments have been historically viewed as hedges against inflation. These include real estate, gold, oil, stocks and inflation-indexed bonds.

Real Estate

Real estate is a popular choice not only because rising prices increase the resale value of the property over time, but because real estate can also be used to generate rental income. Just as the value of the property rises with inflation, the amount tenants pay in rent can be increased over time, enabling the income generated by an investment property to keep pace with the general rise in prices across the economy.

Gold

Gold is also a popular inflation hedge. Investors tend to turn to this precious metal during inflationary times, causing its price to rise. While silver and other metals also tend to gain value during inflationary times, gold is generally the headline-grabbing investment, with the price of gold shooting up when inflation is notably present.

Oil

Like real estate and gold, the price of oil moves with inflation. This cost increase flows through to the price of gasoline and then to the price of every consumer good transported by truck or produced by a machine that is powered by gas (crop pickers, tractors, etc.). Since modern society cannot function without fuel to move vehicles filled with consumers and consumer goods, oil has a strong appeal to investors when inflation is rising. Other commodities such as cotton, orange juice and soybeans also tend to gain in price when inflation rises.

Stocks

The same logic applies to stocks. Companies can generally pass rising costs on to consumers. Based on this, stocks have a reasonable chance of keeping pace with rising inflation. Some companies have a better opportunity to pass on rising costs than others. Toothpaste and toilet paper, for example, are two items that most people will continue to purchase even when these items cost more at the grocery store.

Inflation-Indexed Bonds

Inflation often causes interest rates to rise. Because interest rates and bond prices have an inverse relationship, inflation makes existing bond holdings worth less to investors. To overcome this obstacle, investors can purchase bonds that are inflation-indexed.

In the United States, Treasury Inflation Protected Securities are a popular inflation-indexed investment. TIPS, as they are commonly called, are pegged to the Consumer Price Index. When the Index rises, so does the value of an investment in TIPS. Not only does the base value increase but, since the interest paid is based on the base value, the amount of the interest payment rises with the base value increase. Other varieties of inflation-indexed bonds are also available, including those issued by other countries.

Less Conventional Investments

Arguments can also be made for other investments. For instance, bank loans and high-yield debt are potential inflation hedges. Bank loans are a floating-rate instrument, which means the banks can raise the interest rates so that the return on investment keeps pace with inflation. High-yield debt tends to gain in value when inflation rises, as investors turn to the higher returns offered by this risker-than-average fixed-income investment.

How to Invest

Inflation-sensitive investments are accessed in a variety of ways. Real estate can be purchased directly by buying a building or accessed indirectly through investment in a real estate investment trust.

Gold can also be purchased directly or indirectly. You can put a box of the metal under your bed if a direct purchase suits your fancy. Or you can invest in the stock of a company involved in the gold mining business. You can also opt to invest in a mutual fund or exchange-traded fund that specializes in gold. Here, you have the option of an actively managed fund that offers the service of a professional money manager or a passive, index-based product.

Oil and other commodities are significantly more difficult to purchase directly and store than gold. Rather than put a barrel of oil in your garage or bushel of soybeans under your bed, it is far more convenient to invest in an exchanged-traded fund that specializes in agricultural commodities or businesses. You may also choose to invest in an exchange-traded partnership that gains exposure to commodities through the use of futures contracts and swaps.

If you are a more sophisticated investor, you can invest in various commodities through the use of futures contracts purchased directly rather than through a pre-packaged investment vehicle. If you choose to walk down this path, be sure you understand what you are buying, as well as the potential for losses and the associated tax consequences.

On the fixed-income side, inflation-indexed bonds are similar to stocks in that they can be accessed in a variety of ways. Direct investment in TIPS, for instance, can be made through the U.S. Treasury or via a brokerage account. They are also held in some mutual funds and exchange-traded funds.

The Bottom Line

There are pros and cons to every type of investment hedge, just as there are pros and cons with just about every other type of investment. Similarly, there are no guarantees. Traditional inflation hedges don't always work, and unique economic conditions sometimes deliver excellent results to surprising assets while leaving what seemed to be sure winners trailing in the dust. That's why it's called "investing" (which is based on a combination of logic and hope) and not a "paycheck" or "guaranteed way to make money."

Whatever course of action you choose, you are taking a chance. Sometimes that chance will pay off, and other times it won't. In any event, time often heals all wounds. If you can't afford to be wounded or don't have the time to wait for recovery, position your portfolio accordingly to minimize your worries.

If that's not an option for you at this time, carefully consider the various investments designed to protect your portfolio from the ravages of inflation and choose the one that best meets your needs.

Diversification is also worth considering, as there's no need to limit your portfolio to a single investment vehicle. Spreading the risk across a variety of holdings is a time-honored method of portfolio construction that is as applicable to inflation-fighting strategies as it is to asset-growth strategies.

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Inflation is defined as a sustained increase in the price of goods and services. In an inflationary environment, a gallon of milk that once cost $3 may now cost $4. Over time, inflation erodes the value of a nation's currency.

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The inflation rates affect everyone but it hits low-income retirees very hard. Sometimes, retirees with better income don't have to increase the amount of money their getting. Inflation has moved up and down a lot of the years, but the chart last says it jumped 0.70 % in 2015 --- JAKE GREEN

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The inflation rate responds to each phase of the business cycle. The first phase is expansion. That's when growth is positive, with healthy 2% inflation. As the economy expands beyond 3% growth, it creates asset bubbles. It creates the second phase, which is the peak. That's the month when expansion ends and contraction begins. Inflation will rise to 3% or more.

The third phase is contraction, which is a recession. Inflation falls below 2%. During a recession, deflation becomes a threat. The inflation rate falls into negative territory. The fourth phase is the trough. That's the month when the contraction ends and expansion begins. After that phase, inflation turns positive again.

U.S. Inflation Rate History and Forecast

The table below compares the inflation rate with the fed funds rate, the phase of the business cycle and the significant events influencing inflation. The most recent forecast is in the U.S. Economic Outlook.﻿﻿

Historical Inflation Rate, Bureau of Labor Statistics.﻿﻿ Year-over-year rate as of December.

Percentage of Population That Is Unemployed 1929-1947, U.S. Census Bureau.﻿﻿ Note: This divides the number of people age 14 and over without jobs into the total civilian population.

Unemployment Rate 1948-2015, BLS.﻿﻿ Note: This divides the number of unemployed who are actively looking for work into the labor force.

Historical Targeted Fed Funds Rate.

Effective Fed Funds Rate, St. Louis Federal Reserve.﻿﻿ Used to estimate targeted fed funds rate before 1971.

Recession History

History of Gold Standard

Business Cycle Dates, NBER﻿﻿

National Income, and Product Accounts Tables: Table 1.1.1. GDP Growth Rate, BEA.﻿﻿

The Fed uses complex computer models to create its forecasts. But so many variables change in between estimates that it's difficult to be precise three years out. The critical thing to recognize is that the Fed doesn't think inflation will be a credible threat any time soon. (Source: "Economic Projections of Federal Reserve," The Federal Reserve, December 19, 2018.)﻿﻿

More History

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How Bad Is Inflation? Past, Present, Future

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The inflation rate responds to each phase of the business cycle. The first phase is expansion . That's when growth is positive, with healthy 2% inflation. As the economy expands beyond 3% growth, it creates asset bubbles. It creates the second phase, which is the peak.

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https://www.theatlantic.com/magazine/archive/2010/04/my-inflation-nightmare/307995/

It basically summarizes how the value of money is going down due to inflation, and how people are investing in gold.

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Historical Inflation Rate -Josh Marquardt

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Historical Inflation Rate -Josh Marquardt

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https://inflationdata.com/Inflation/Inflation_Rate/HistoricalInflation.aspx#table

This article listed a table of the inflation rates 1914-2017 month by month. It goes to 3 decimal points because the author said it showed more of a difference than just one decimal place.

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"Get Ready for Inflation and Higher Interest Rates"-Andrew Sneed

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"Get Ready for Inflation and Higher Interest Rates"-Andrew Sneed

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Everything works better when it is clam and not in a crisis. The prices will go up if it keeps inflating and staying calm will help the most.

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Get Ready for Inflation and Higher Interest Rates

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The unprecedented expansion of the money supply could make the '70s look benign.

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"My inflation nightmare"- Payton Christensen

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"My inflation nightmare"- Payton Christensen

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https://www.theatlantic.com/magazine/archive/2010/04/my-inflation-nightmare/307995/

The main concept of this article is how much inflation has affected american currency. Pretty much saying that the US penny is meaning less and less. Also it's main thing it says were need to stop is the US debt. Fix that and maybe we can take inflation down.

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Summary of Are Inflation "Rates Running Wild?"

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Summary of Are Inflation "Rates Running Wild?"

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moneyover55.about.com/...ted-States-1973-To-Current.htm
Michael Quigley
Because of the government spending in the last decades it has caused inflation.

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What Causes Inflation?              -Nick Riedel

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What Causes Inflation?              -Nick Riedel

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https://www.econedlink.org/lesson/615/
Summary: Back then a dollar could get you many things. Now, it can not get you as many things. This is because of inflation. Inflation has remained in check for much of the past thirty years. Because of this, prices have remained steady. We have to look out for factors that can lead to inflation, though. Inflation may occur and prices may increase because of demand exceeding supply or the cost of producing the goods increases.

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Summary of US inflation eases as consumer prices retreat in March 2013 - Beau Sarver

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Summary of US inflation eases as consumer prices retreat in March 2013 - Beau Sarver

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In 2013 Inflation was starting to hurt our American economy so the US decided to ease down on prices of things such as gasoline and clothing. So in other terms it took the pressure off of our citizens backs as the inflation was hurting our wallets. In the span of 12 days gasoline prices constantly dropped going from 3.79 to 3.53. The government did not only do this in gas. They decided to take an ease on food as well.