Why are economists and other business people concerned about inflation?

Question

Inflation can only happen if the economy is growing too quickly, and at the moment that is NOT the case. Yes, interest rates are really low, but still it has not made any impact to bolster the economy. So too is the dollar, which has depreciated largely within the past 6 months of this year.

So why is inflation a concern?

Thanks

Answer 1

The economy is NOT growing, rather it's dropping like a rock and Inflation is rising by leaps and bounds. These two issues combined, create poverty and suffering.

Answer 2

Inflation can occur even if the economy is not expanding.  Really, inflation occurs any time the money supply expands faster than the economy as a whole does.  This can happen because the economy shrinks, and money supply stays constant, or if the government revs up the printing presses and produces more of it, or if there are changes in the banking system that encourage the use of credit or the holding of less reserves.

The reason to be concerned about inflation is that it acts as a tax on wealth and on incomes.  If you are increasing your savings by 5% a year, but inflation is 10%, your true savings is actually shrinking over time.  Inflation erodes purchasing power over time, and causes people to make decisions that are not economically sound in order to keep up with it.  In Germany in the depression, for example, workers used to get paid once or twice a day, and ran out and bought whatever was available before the value of their wages diminished.  Price stability benefits everyone, and without it, all sorts of market inefficiencies result.

Answer 3

Are you kidding?  The definition of Inflation is "Too Many Dollars Chasing Too Few Goods".  That means that too much money exists in the economy. As such, the value of the dollar is declining, thus it takes more dollars to buy the same stuff. Thats why prices are rising.

The Fed needs to hike interest rates NOW, before the problem gets worst. If they don't they'll have to push the Nuke Button and that means cutting the money supply. And if that happens, prepare for a few years of massive unemployment and economic collapse until the country right's itself.

Cash will be king, don't buy any assets if the money supply gets cut.

Answer 4

the price of everything is going up and wages are staying the same

Answer 5

During heavy dose of inflation the economy slows down , .......recession starts and if the inflation isn't checked , the next phase is depression .

In an inflationary economy , the purchasing power of the people reduces , which i turn , very harmful for any growth in industry or trade.....unemployment increases.....jobs become scarce .

Answer 6

>Inflation can only happen if the economy is growing too quickly

Not really. It can at least happen if the money supply is growing too quickly, as has been demonstrated in real places and times in history. Due to the multiplier effect of loans, it doesn't even take all that much extra currency to increase the money supply by a considerable margin. If GDP is falling, even a constant money supply can be 'growing too quickly' to keep inflation down.

>Yes, interest rates are really low, but still it has not made any impact to bolster the economy.

It seems to me that interest rates are a double-edged sword, so to speak. With high interest rates, you'll have lots of people willing to lend, but few people willing to borrow. With low interest rates, you'll have lots of people willing to borrow, but few people willing to lend. So in order to keep the loans flowing, you have to make sure interest rates stay at the right level. I'm not sure to what extent this affects inflation, though.

Answer 7

Everything from a loaf of bread to a gallon of gas becomes more expensive. Its a problem cause you can not buy as much for your dollar. To fix it we need to get out of debt.

Answer 8

In today's world, inflation also depends on what is happening in other countries. Although the US is not growing too quickly, other countries such as China and India are. This is pushing up prices for commodities such as oil and food. This also affects prices in the US, because these commodities are traded globally.