A World of Inflation

Most of us are affected by inflation. Inflation is caused by increase in the cost of goods and services over time. Inflation is a monetary phenomenon. When supply of money is higher, eventually that is going to be extremely inflationary. Usually normal inflation is a sign of a well functioning, working economy.

Sometimes inflations is like a shock, because it destroys consumers buying habits. Is anyone benefiting from it? When inflation is expected, the consumers starts to look for more money which creates a cycle where everyone in the chain is chasing each other.

When workers start to demand higher payment raise, normally the response of countries and banks is raising interst on loans. In order to adjust to a stable period, the economy and a country usually needs to go through a painful recession when the economy needs to be slowed down. To prevent all of this, normally the work of central banks is to make sure inflaton does not go higher than around 2-3 %. The goal is to keep inflation numbers low but not bring them to original prices or deflation. Why deflation is harmful is because consumers will start buying excessively again with reduced demand which leads to recession. The long run history suggests that the best outcome is to have inflation low so that we do not talk about it as a problem and a challenge in everyday life.

In past inflations were overcome either by printing, stopping the print of or by creating new currencies. The worst inflation ever recorded was in Hungary by the end of World War II with a banknote carrying a denomination of 100,000,000,000,000,000,000.

Hyperinflation is when prices of box of goods is raised more than 50%. Post World War I some countrires experienced level of inflation of over 300%. There are still imagines of those times when kids used to make lego out of cash, because cash was worthless. The world’s first recorded hyperinflation came during the French Revolution, where monthly inflation peaked at 143 percent, but it took until the 20th century for this type of out-of-control inflation to happen again. The report outlines that during the 20th century, seventeen hyperinflations occurred in Eastern Europe and Central Asia, including 5 in Latin America, 4 in Western Europe, 1 in Southeast Asia and one in Africa. The United States has never been a victim of hyperinflation, meaning even the inflation in early 20s was under 50%.

Why inflations still occur and will probably continue is due to overspending by the government in situations like the Covid pandemic where people were forced to be out of work. At the same time, people started spending snd ordering more goods than manufacturing and services were made which pushes companies to increase prices and that way solve the problem of overspending of consumers. Another cause of inflation is when the cost of business has become so high that companies are forced to raise their prices.

One of the ways to solve this without increasing interest on loans too much is by boosting manufacturing and services. Manufacturing is one of the biggest issue big companies face. Constant regulations on materials, methods, delivery and so forth is causing delays even with the best planning. Another light on a current issues is the economic consequences caused by decline in birth rates in many part of the world and the risk of collapse of population in those countries. Countries like Japan will need a decade to restore before the statistic changes.

According to physicists technology is not advancing fast enough to be able to answer questions of the universe, but for answering economic and simple life issues on Earth, it is doing well. A way to solve manufacturing is to count increasingly and wholeheartedly on innovation in robotics and 3D printing.