All About Inflation

“About the times we can make ends meet, somebody moves the ends” – Herbert Hoover

Inflation Stock photos by Vecteezy

What is Inflation?

Inflation is an indicator of how prices rise over time, commonly defined as the change in cost of a fixed basket of goods.

For example, if a basket of goods consisting of a phone, headphones, computer and a notebook cost £2000 in 2020, and then in 2021, the exact same goods cost £2200, the inflationary rates for the year would be 10%.

Why does Inflation change?

The level of inflation in an economy will differ from year to year, and this is due to numerous factors. Some of these include rising prices of raw materials, rising wages, and a reduction in supply.

For example, due to disease killing millions of hens in the US in 2022, the price of eggs soared by 59.9% in just one year. This is an example of reduced supply impacting inflation.

Why should I care about Inflation?

Rising price levels have many impacts on young people, some of these include:

• Rising cost of living – As prices rise at a greater rate than wages, it becomes more and more expensive to afford the basics! This is why it is important to track your expenses and budget!
• Student loans – Inflation affects interest rates, and this in turn impacts student loans.
• Savings Accounts – Similar to student loans, the changing inflation rates impact interest rates, meaning the returns you get on savings may go up or down – so keep check!
• This is just scratching the surface of the impact changing price levels have on our lives.