Why does bread cost more this year?
Last year a loaf cost you one price. This year the same loaf, from the same bakery, baked by the same man with the same serious face, costs noticeably more. Nothing about the bread improved. So what happened?
Your money shrank, not the bread
When prices across the economy keep rising over time, economists call it inflation. The formal definition is a sustained increase in the general price level. The everyday definition is simpler: your money goes to the market and comes back with less.
One price going up is not inflation. If only tomatoes are expensive, that is a tomato problem. Inflation is when bread, transport, rent, school fees and data all climb together, month after month.
Where it comes from
There are three usual suspects, and they often work as a team.
- Too much money chasing too few goods. If people have more money to spend but the country is not producing more things to buy, sellers raise prices. Economists call this demand-pull inflation.
- It costs more to make things. Wheat is imported. So is the fuel for the delivery van. When the exchange rate weakens or fuel gets dearer, the baker's costs rise and he passes them on. This is cost-push inflation.
- Everyone expects prices to rise. If the baker believes flour will cost more next month, he raises his price today. When everybody does this, the expectation makes itself true.
Why it matters
Inflation is a quiet tax on anyone whose income does not rise as fast as prices: salary earners, pensioners, students on a fixed allowance. It also punishes saving, because money kept under the mattress buys less every month it stays there.
The good news is that inflation is not weather. It has causes, and causes have responses. Those come in the next lessons.
This is a sample lesson, written to show how the site looks and reads. It will be replaced with Stratejik-9000 Consult's own teaching.