Why does everything cost money
Why is everything getting more expensive?
Why do I get less and less for the same money?
Demand and supply determine what something costs. When more money comes into circulation, for example through cheap loan interest, the demand for products increases because people have more money to buy them. However, if the range of products and services does not increase quickly, there will be more money, but you can no longer buy it. The prices are becoming more expensive.
If everything becomes more expensive, you get less for the same money. Every single euro loses its value. That means: purchasing power is falling.
For example, in 2011 a subway ticket in Vienna cost 1.80 euros, in 2015 it cost 2.20 euros. Of course, purchasing power depends not only on this ticket, but also on many other goods that we regularly consume.
Statistics Austria compiles an average “shopping basket” every month and calculates how much everything has become more expensive. For example, if the shopping cart is 2.8 percent more expensive than in the same month of the previous year, the inflation rate is 2.8 percent.
And then there's the "felt inflation"
In Europe, inflation, i.e. the rate of price increases, has been low for many years. Europe is considered to be “price stable”. Even so, many people find inflation quite high. Her instinct does not deceive her: there is also “perceived inflation”.
Goods that we need almost every day, such as food, are becoming more expensive faster than, for example, televisions and cars. But because we so rarely buy cars and televisions, we don't include this group of goods in our feeling.
Is inflation always a bad thing?
High inflation - over 5 percent - is dangerous because money then quickly depreciates, we can afford less, and people lose confidence in their currency. Even companies can hardly plan long-term investments when inflation is high, because it is difficult for them to get credit and can no longer reliably calculate their profit margins.
But inflation is not all about losers. Debtors benefit from the fact that their debts decrease in value. And fixed tangible assets like real estate gain in value in relative terms.
A slight inflation can even stimulate an economy: If people feel that their money is worth less and less anyway, they prefer to invest it or spend it on consumer goods.
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