You often hear about inflation on TV or read about it in newspapers. However, chances are you don’t really understand what it is all about. Even if you did study economics in college, you would have already forgotten about it. Who cares! You are just too happy to finally have gotten over the course. After all, economics has been constantly voted as one of the most boring subjects ever created.
However, inflation should be one of your concerns. Why should you care? The answer is simple, because it affects you. It affects your wallet. It affects your finances. And ultimately, it affects your life.
What is Inflation?
In economics, when you talk about inflation, you talk about the relationship of the prices of goods and services with the purchasing power of your money. Inflation happens when there is a persistent increase in the prices of goods and services, which will ultimately lead to the fall of the purchasing power of your money.
To put it simply, your Php 500 before can buy you a cart load of groceries. Today your Php 500 is not even enough to fill a basket full of groceries. I would not be surprised if in the future, you will only need to use your hands to buy Php 500 worth of groceries. In short, the value of your Php 500 bill goes smaller and smaller as the prices of goods continue to increase. That is inflation in the works. It means you need to use more money to be able to purchase the same goods that you have been buying before.
The inflation rate pertains to the percentage increase of the general prices of goods and services. It also means the rate in which the purchasing power of your money is decreasing. In other words, if a chewing gum costs Php 10; a 3.5% inflation rate means the Php 10 chewing gum will now cost Php 10.35. It also explains why the pandesal in your neighbourhood bakery is shrinking in size.
Inflation is a global phenomenon. No country is exempted from inflation. This means that everyone on the planet is affected by inflation.
So, the next time you see the news reporting the inflation rate, listen and take a good look.
We cannot control inflation but there are ways to cope with inflation.