What is Inflation? The good and bad that come with it...

Written by Dakotta Hargrave

Inflation is a word almost everyone hears and deals with daily. It's an unfortunate problem that hasn't been solved but has promised to be. Inflation was even declared Public Enemy No. 1 in the United States - by President Gerald Ford in 1974. 

What is inflation? Inflation is the increase of prices that is changed higher over time. Inflation can occur when too much of our money is going after the creation of goods and services in the economy, which then results in a rise in price levels. Inflation is when the money supply grows too big compared to the size of the economy.

What creates inflation? Since the supply of money grows the purchasing power drops. Purchasing power is how much you can buy with your money. The three main causes of inflation are demand-pull, cost push, and inflation expectations.

Demand-pull inflation is caused by the developments on the demand side of the economy. Cost-push inflation is caused by the effects of higher input costs on the supply side. Lastly, inflation expectations can cause inflation because it is what households and businesses think will happen to the prices in the future that will influence the actual prices in the future.

This shows the rate inflation can go up and down. As an example, in June of 2022 it was the largest percentage in 14 years, being at 9.06% and January of 2024 at 3.09%, which is still relatively high

Inflation, while it can be a good thing, can also be a bad thing. Consumers and companies are affected by the increase in inflation but they are each affected differently. Consumers lose their purchasing power with the prices of services and products they buy. Food, utilities, and gasoline with an increased price can affect consumers by making it harder to be able to afford certain things.

A consumer named Kelsey Aubrey and an employee at a grocery store stated about inflation saying, “We hop from store to store, trying to save where we can. Our bills are still pretty high. And we’re working a ton to pay bills.”  

Companies are affected by inflation by losing purchasing power and risk seeing less gross profit per dollar. Due to inflation, companies have to find an in-between between the high prices and lower prices to have consumers still buy and take part in their products while they try to not suppress their demand.