Why do we have inflation?

My partner asked about inflation
This is what I told her
Initially you were 36-24-36, and now you're 48-40-48. So technically, you have more than you had earlier, but your value is less than earlier. THIS IS INFLATION"

Economics is not so difficult if we have the right examples. :D:D:D:D
 
The short answer is because the currency issuer issues more money to pay for things than is returned to it, the long answer would take me all night to type out and it's multifaceted and complex. :)

It basically boils down to supply and demand, when there's more of something its value decreases and you have to use more of that something in trade for something else, if there are only a 100, lets call them spondulicks, in the world the value of each of spondulick would be very high, we could trade one spondulick for millions of loaves of bread for example. If there are now trillions of spondulick in the world each one of those spondulicks has a much lower value, instead of getting millions of loaves of bread for one spondulick you may now need 185 spondulicks just for one loaf of bread.

On the other hand if no body wants of needs a spondulick there value would be very low so you may not even be able to trade a million of them for a loaf of bread, that's the demand side of things, in all of this the actual value of a loaf of bread hasn't changed, it's only the value of the spondulick that's either gone up or down depending on the supply (how much and how easy they are to get) and demand (you have to acquire spondulicks or you could end up in jail or not be able to trade for food).

Then there's the simple market economics of why, if you don't have inflation then you have deflation and with that people basically stop spending money because the money they have today will be worth more tomorrow, if the things you buy tomorrow are going to cost less then you'd hold onto your money.
 
Although not strictly true, money and wealth is a finite resource, and everyone wants to take a bigger slice of it for themselves. When one person in a product chain decides that want to take a little more, it’s the person at the top of the chain who benefits the most and the person at the bottom of the chain who loses the most.
 
I'm sure that other posters have touched upon it above, but the main point are 'cost-push' or 'demand-pull' effects. Google up simple supply and demand graphs and you'll see that as the quantity increases so does the price and vice-versa.

The amount of money in the system will also impact it as effectively the 'value' of all the money stays essentially the same yet there is more of it, so each £ is worth less.
 
Loads of factors that drive inflation in a free market economy, but in the most simple terms it's supply vs demand.

Wage increases are seen as a good thing, which means people are willing/able to spend more for something they want (demand increases). They market adjusts for this over time.

Supply of most things are finite

Inflation de-values debt which is good. Obviously the opposite is true for savings. Both ultimate outcomes depend on interest rates, which is why they can be used to control inflation.

Inflation is actually important because it adds to economic demand, buy now as it will be more expensive later. If we had de-flation everyone would wait to buy things until they were cheaper. Too much inflation is also bad (See WW2 Germany).

Believing it's driven by greed is an odd way to view things, as there are so many contributing factors.
 
Cleisthenes said:
I'm sure that other posters have touched upon it above, but the main point are 'cost-push' or 'demand-pull' effects. Google up simple supply and demand graphs and you'll see that as the quantity increases so does the price and vice-versa.

The amount of money in the system will also impact it as effectively the 'value' of all the money stays essentially the same yet there is more of it, so each £ is worth less.
Click to expand...

should the price not go down as demand increases. you can bulk buy more of your materials at a cheaper cost and hopefully pass on the saving
i'd be with some who say inflation is a lot to do with greed, but we are all to blame. we all want more money, more this more that. natural vicious circle
 
Did you know that Japan's inflation in the past 15 years is pretty much at zero, or barely above zero? If you draw a line where they were at 2000 to now, it barely gets above zero. A can of pop in a vending machine was 100 yen back in 2000, you can still find them at 100 yen today.

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CircleFaust said:
should the price not go down as demand increases. you can bulk buy more of your materials at a cheaper cost and hopefully pass on the saving
i'd be with some who say inflation is a lot to do with greed, but we are all to blame. we all want more money, more this more that. natural vicious circle
Click to expand...
The graph is more than if more customers want your product then you'll put the price up. There is another graph showing economies of scale so theoretically you can charge more whilst it costs you less to provide the good.

Companies will always charge more if the customer is willing to pay it, it's called capitalism. Look how crazy the smartphone market has become, yet people will still happily drop £1k on a phone when 10 years ago £400 seemed like a bonkers amount to spend on a phone.
 
Cleisthenes said:
I'm sure that other posters have touched upon it above, but the main point are 'cost-push' or 'demand-pull' effects. Google up simple supply and demand graphs and you'll see that as the quantity increases so does the price and vice-versa.

The amount of money in the system will also impact it as effectively the 'value' of all the money stays essentially the same yet there is more of it, so each £ is worth less.
Click to expand...
Shouldn't that be as quantity increases the price goes down and vice-versa.
 
I think this is one of those threads that doesn't really warrant much discussion as it is more a request for information.

@wez130 there is a wikipedia article that does give an overview, perhaps it might be useful to do a little reading too - for example the very short introduction series of books are quite nice if you want a brief overview of some subject outside of your own field(s) - might be worth looking at say these two, they're pretty cheap and generally brief, easy reads:

https://www.amazon.co.uk/Economics-Very-Short-Introduction-Introductions-ebook/dp/B000SEI7Q2

https://www.amazon.co.uk/Banking-Very-Short-Introduction-Introductions/dp/0199688923
 
Also I've gotta say that, given this is the internet, it's refreshing not to see a load of stuff about the gold standard, the Rothschilds, antisemitic tropes and some conspiracy theorist type posting that Zeitgeist video while ranting about "money is debt" blah blah blah...
 
PanMaster said:
Because we use worthless electronic and paper fiat currency that banks can keep printing out of thin air instead of hard currency like precious metals or bitcoin.
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I appreciated how you referred to banks printing worthless electronic fiat paper money and suggested we use a " hard currency" like bitcoin as an alternative :D
 
I get all this, but it's more the point of, nobody is better off when they sell their house for a £150k profit for example as they have to spend that extra profit on a new house because, that also is worth £150k (or more) more too. All it has done is made everything a lot more out of reach for poorer people (like myself haha). So my point, like I said, is that it comes down to nothing but greed. Sad thing is, I see no solution, the rich will stay as rich as they are (not richer) as the poor get poorer as prices continue to escalate.
 
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