When does an object increases in value, and when does it lose its price?! Is it easy to answer? Yes, it is!
Let’s get this clear. Anything that’s got a huge availability, or one that’s easy to found, doesn’t cost much. Anything that’s rare is costly.
Compare some random objects like Iron and Gold, Pebbles and Coals, Lions and Dogs, Chickens and Lambs, and so on.
Supply and availability is the very general idea that determines an object’s worth.
You can pretty well say that if pollution level keeps on rising the way it is right now, then probably after a few centuries, oxygen and water will become the costliest substances on this Earth. Pheewww!!!
That’s too much to take in, is it?
Here’s the answer; “Inflation” is not something that happens due to an external force. It’s us, the humans, who created currencies, divided lands, assigned values to objects, and hence suffer imbalances in what this world can offer! This imbalance between supply/availability, and demand/necessity is what we may call inflation.
As per economical terms, inflation is the rise of prices of any object, good, or commodity. Deflation, on the other hand, is just the opposite!
If by any chance next year, the farmers see a huge increase in jute cultivation, then prices of jute goodies will drop!
This is how the market works. It thrives on the availability and rarity of products!
What causes inflation?
Very difficult to say! There can be many factors. Natural calamities or disasters, civil war, lack of labors, low supply of products, a sudden increase in demand of a certain object, an abrupt increase in cash flow from reserve banks, and anything that creates a scarcity in an object’s supply or increases drastically the object’s demand!
Why can’t the reserve banks print more notes to fight inflation?
It’s not bad to think like that! I mean seriously, why can’t they just keep on pumping cash?
Well, there’s the problem. Most of the goods that we have, I mean those that have physical or economical existence (bonds, funds, etc.) are limited! On the other hand, the money we have will become endless!
Ultimately what happens is, you are left with extra money after purchasing a good and the money becomes useless! Or the product, you are after, increases in price, as there’s more demand since everyone’s after it because all have the cash!
That’s when inflation occurs!
But throughout the ages, as we know the poor is dominated and the rich get richer while the poor get poorer! That’s because, those who are smart enough to track inflation and those who have the money, buy extra commodities before the market hits inflation! It, in turn, increases the demand because more products are purchased and that results in an increase in the price of the product.
Now the poor can’t buy the product as they still don’t have the money. Plus the price of the product has also increased!!!
What to do then?!
Well, according to the words of Jim Morrison “We could plan a murder Or start a religion.”
What Inflation can do to your money?
Money itself has no intrinsic value. It’s worth something because we believe so! Else it can only be used to warm ourselves on a cold winter night by burning them!
No matter who says what inflation can’t be stopped! Our needs are increasing and the only thing that’s becoming cheap is technology! Rest everything is skyrocketing!
Believe it or not, inflation is going to take over you savings sometime soon, if you can’t find ways to increase your amounts!
But one relief is there that with huge rates of inflation, all forms of savings accounts receive higher interest rates!
Still, you can’t rely completely on that as there are exceptions and anomalies!
Yes, investment can only save you. Your money should always be working and be a part of the circulation. Hiding it underground will only get useless unless your money’s made of gold or silver or platinum!
The more it is a part of the circulation, the more is it influenced by the rise and fall of inflation!
Footnote: Don’t forget to consult a financial advisor and see what investment options are suitable for you! Also, savings accounts are a part of investments. Always keep one or more savings accounts open. This means bank accounts and not cash stashed under your pillow!