Inflation is a major concern to global economists, and affects people from all walks of life. It refers to the measure or rate by which the cost of goods and services rises and the relative purchasing power declines. Essentially, as prices increase, the ability for your money to buy things decreases, prompting consumers to spend less on goods and services.

There are a few theories that claim to explain inflation. Two of them are:

  • Cost-push inflation: This type of inflation is caused by a sudden rise in the cost of production while demand for products or services decreases or remains the same. The additional production cost is transferred to buyers in the form of an increase in retail price.
  • Demand-Pull Inflation : This type of inflation can occur when there is a lot of demand for a limited number of goods. It happens when there is a shortage of supply, and the economy demands more goods and services than are available. The result is price increases, which will remain until supply can finally match demand and reach equilibrium again. This usually happens to growing or emerging economies.

Inflation can be calculated using the Consumer Price Index (CPI). Economists track the average prices of some basic goods and services in order to measure the CPI. These "market baskets" of goods and services are monitored and compared over time to determine the price index. Inflation calculators compute the trend of inflation through the years. Below are some websites that provide online inflation calculators and information about the CPI:

  • Inflation Calculator: This DollarTimes tool gives an approximate calculation of the relative buying power of the U.S. dollar between any two years from 1914 to 2009.
  • US Inflation Calculator: This calculator measures the buying power of the dollar over time. The site also includes articles on inflation.
  • Tom's Inflation Calculator: This tool approximates inflation using the U.S. Retail Price Inflation from 1666 to 2070.

The CPI is used to evaluate the cost of living framework, which measures the change in consumer spending that is required to reach a certain standard of living. Inflation has a large impact on the cost of living in any given country. The following websites illustrate how inflation is affecting the global market, and report the cost of living in different countries:

  • List of Countries by Inflation Rate: This article shows the inflation rates of 190 countries, based on information from the CIA World Factbook.
  • Inflation Rates: This page shows the global inflation rate year-over-year from 2009 – 2021.
  • Global Cost of Living Rankings : This page shows the cost of living in countries around the world as well as purchasing power and average monthly income.
  • Cost of Living Guides: This page gives cost of living statistics for most countries, as well as supporting links.

Inflation can have significant impacts on an economy and its citizens. For example, a sudden increase in the price of commodities and services or devaluation of the currency would have a domino effect on the economy: it could lead to decreased demand for the good or service which could lead to lower profits for the manufacturers or sellers, which could lead to workers being laid off.

Alternatively, the fear of inflation can lead to hoarding: consumers and retailers buy excessive amounts of certain products to keep them for future use, so that they will not have to pay high prices when inflation occurs. Those who do not earn fixed incomes are less affected by inflation, because they adjust to changes easier. Lenders, however, are gravely affected, since lower interest rates may make loans more favorable to borrowers.

Inflation can cause a lot of problems to a country's economy but isn’t always a bad thing. In fact, it is common for countries to have a targeted inflation rate (normally somewhere around 2%) to ensure the economy is growing and its citizens can maintain their purchasing power. It is usually not something that can be changed quickly or easily, but if a country employs the right strategies to control it, problems can be resolved.

About The Author

About the Author

Written by Chris Fletcher (aka the Lease Guy). Chris is a senior account executive at Crest Capital, where he manages vendor finance programs for manufacturers and dealers of equipment, vehicles, and software. He's also an active Twitterer—check out his page if you follow financial topics and current events in the world of finance.