The economic definition refers to the continuous and general rise in prices for a period of time due to the fact that the money supply is greater than the actual demand for money under the conditions of currency circulation, that is, the actual purchasing power is greater than the output supply, which leads to the devaluation of the currency. Its essence is that the total social demand is greater than the total social supply.
Simply put, the issuance of national banknotes exceeds the amount of currency needed in circulation. This causes the purchasing power of banknotes to decline and prices to rise (referred to as inflation).
For example, ten years ago, a pound of beef cost US 5, but today a pound of beef costs US 25 . The purchasing power of banknotes has dropped significantly.
This can also lead to a measure we usually use to measure inflation:
Consumer Price Index (CPI)
Official definition: A macroeconomic indicator that reflects changes in the price level of consumer goods and services generally purchased by households.
It is a relative number that measures the price level of a group of representative consumer goods and services over time in a specific period of time. It is also used to reflect the changes in the price level of households purchasing consumer goods and services.
How to deal with inflation?
Find cheaper ways to have fun
1. Reasonable consumption, reduce unnecessary expenses
Now that prices have risen, the simplest and crudest way to deal with rising prices is to not spend money. Of course it is impossible not to spend, but it is necessary to spend less.
We’ve all heard the story of the famous “latte factor”, popularized by author David Bach. The concept is simple. Small amounts of money spent on a regular basis cost us far more than we can imagine. This is not to advocate excessive savings, but reasonable consumption is necessary.
Sometimes we have to be tough on ourselves and appropriately reduce some unnecessary expenses. After a period of time, you will be surprised with your gained.
2. Increase your wealth
Start invest in the stock market using online investment account
Open source is one of the channels to deal with inflation. Nowadays, there are many channels for wealth management. The stock market, funds, bank wealth management products, gold, foreign exchange and other fixed-income or non-fixed-income products are all good channels to increase wealth.
If you have enough funds in your hand, you can make some products with appreciation potential and investment value, such as buying gold and treasury bonds. Try to choose a product with a higher interest rate.
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3. Think different – change the way you look at inflation
In the history of mankind, inflation has appeared constantly as a cyclical phenomenon. Since the appearance of ancient metal currency, inflation has always existed along with the development of currency.
Focus on the good in any given situation
From the middle of the 15th century to the middle of the 17th century, Europe set off the opening of new shipping routes. Spanish colonists carried out colonial plunder in the Americas, bringing back a large amount of gold and silver. The socially necessary labor time to obtain equivalent exchange was reduced, just in a short period of time. Internally, the value of this equivalent exchange was reduced, which led to the “price revolution” and “commercial revolution” in Europe, and the phenomenon of currency devaluation, inflation, etc. As a result, the price of the whole Europe soared.
During the ancient Roman Empire, due to the huge public works, high level of welfare, and constant wars, fiscal and taxation support was difficult, but its economic development level was not enough to support the rapid urbanization and huge public expenditures, so in order to make up for the financial deficit, The government had to reduce the silver content of the currency, which led to the devaluation of silver coins, which caused inflation and prices to rise.
At the beginning of the 18th century, the French national economy was in extreme difficulties due to the successive wars launched by the French King Louis XIV. In order to solve the financial crisis, the government accepted the advice of scholar John Law.
First to carry out currency reform, adopting a paper standard, and secondly to set up companies, issue stocks, and stimulate the stock market to raise funds and repay government debts. The amount of money to be issued by the precious metal standard depends on the amount of gold and silver on hand.
Due to the limited output of precious metals, it is almost impossible to increase the supply of money in a short period of time. While the paper money standard does not have this limitation, they started printing as much as they want (as long as the authority are willing).
In the end, due to the massive issuance of banknotes, inflation rose, and people flocked to banks to exchange banknotes for gold.
It can be seen that the supply of money has a great influence on inflation.
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4. Self Investing
Use some of the funds in your hand to invest in yourself. It is very possible to obtain higher returns. For example, many people say that prices are rising too fast, but wages are not. But whether or not wages can rise mainly depends on personal ability. Therefore, instead of complaining, it is better to learn more professional skills to improve yourself in order to obtain higher wages, and offset the currency depreciation caused by inflation through the increase in wages.
In addition, investment in personal health is also very important. Exercise more and pay attention to the diet structure. Only with a healthy body can you live and work better. On the other hand, if you get sick, the cost of medical expenses can be significant. Considered this as a source of income and cost-saving investment.
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