Skipping Isn't Solving

What exactly is inflation, what causes it and what can we do to stop it?

Janine

Dear Janine,

Basically, inflation is the increase in the cost of something. For example, if the inflation rate of gasoline is 10 percent, that means the cost of gas went up by 10 percent.

There are a lot of variables involved when the price of a product increases. One of these is simple supply and demand economics. This means that if there’s a shortage of a product, it’s perceived to be more valuable. The result of this is almost a bidding war of sorts, and it will cause prices to go up.

The opposite is true if there’s an over abundance of a product or item. If you’ve got 10 people wanting 100 items, then you’ve got a soft market, and the prices will go down. That’s called “deflation.”

That’s a pretty simple factor, but the variables can get complicated and interconnected. If you’re buying food from another country, that particular country’s economic situation affects our economy because it’s a component of our economy.

Or let’s say you’re building a house, and shingles for the roof are more expensive than they used to be. Well, there’s oil in singles, and the price of a box of shingles may have gone up because the price of oil went up. So then, you’re looking at a scenario where oil caused housing prices to rise.

Great question, Janine!

- Dave