Inflation: What Is That?

Let us simplify it for you.

The word “inflation” can mean an increase in the price you pay for goods.

If you are used to paying IDR 5,000 for a plate of nasi goreng across Jakarta then, suddenly, because of inflation, your regular Warteg (Warung Tegal starts charging IDR 6,000.00 for the same food. Now this means your money has decreased its value while prices for the same goods have increased. That is the “effect” of inflation.

The American Heritage Dictionary of the English Language, Fourth Edition, Copyright 2000 goes on to say that “inflation” is caused by an increase in available currency and credit beyond the proportion of available good and services.

So whenever you see prices going up, that’s the “effect” of inflation. What is being inflated is definitely the price, hence, “price inflation”.

We hope we didn’t lose you.

IDR 5,000.00 IDR 6,000.00

INFLATION

Now, the actual debate on the very definition of inflation continues, but there are two types that basically ensure your money isn’t enough:

  • Price Inflation. As discussed above, that’s when it takes more money to buy the same item.
  • Monetary Inflation. Whenever the government prints more “physical money,” devaluing the existing circulation of money, that’s monetary inflation. Of course, governments have more sophisticated ways of inserting that additional money.

Tom Rose made a very interesting example: Let me give a simple example: Picture me with a toy balloon in my hand. I put the balloon up to my lips and blow air into it. Result: the balloon expands. I have inflated the balloon! Assume that the air I expel from my lungs into the balloon is money, and assume that the circumference of the balloon represents the general price level. With each huff and puff more air (money) is injected into the balloon (the economy), and the result is that the circumference (price level) rises. This is what monetary inflation (injected air into the balloon) and subsequently rising prices (the growing circumference of the balloon) is all about.

And you do know what happens next when that balloon pops.

The next questions are:

  • what is the inflation rate of your country?
  • what are the steps that your government is doing about it?
  • more importantly, what are the things you can do to stop inflation from ruining your newfound wealth?

Tune in next week.

About Asmartrock

N. Mark Castro is the chief political communications strategist for PT AsiaLeads, a political and communications policy-making body based in Jakarta, Indonesia. He is also the Executive Director at the Southeast Asia Consulting Group, an investment advisory company assisting clients roll out their presence for the ASEAN Economic Integration in partnership with government. The views posted here are his own and do not in any way reflect the views of the companies he represents.

Posted on July 16, 2012, in Previous. Bookmark the permalink. Leave a comment.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

ItandEat

Faces and Places

Unspun

Unspinning spin and other distractions

spiceislandsblog

This WordPress.com site is the bee's knees

Salt and Light

Talk minor, act major.

PikselPal

any screen one goals, Yours

Don Charisma

because anything is possible with Charisma

We'll Always have Casablanca

Maybe not today, maybe not tomorrow...but soon! And for the rest of your life.

blueVisions Indonesia

Certainty, Innovation, Excellence.

blueVisions Australia

Certainty, Innovation, Excellence.

Health & Family

A healthy balance of the mind, body and spirit

Teppy and Her Other Sides

Eat well, live well, and be merry!

loveheartseverywhere

my collection of love & hearts for you and from you, around the world

theconservativehillbilly

Confronting stupid people with the cold hard conservative fist of truth

The Sentient Mouse

From my soul to yours...

wanhandredwan

...of wander & wonders

Parenting And Stuff

Not a "how to be a great parent" blog

%d bloggers like this: