Inflation is the sustained increase in the general price levels of goods and services in an economy over a period of time. We may not see inflation happen very quickly but over time it’s a big deal, and a big risk. Investors don’t think much about inflation risk, but that risk is the risk of losing your purchasing power, if you don’t earn at least what inflation is increasing by, after taxes, it’s a loss of purchasing power. Think back to what things cost in the past compared to today and you see big changes, that is inflation. Developed economies generally have a relatively stable inflation over time as most Central Banks have a charge to keep inflation in check and not to allow it to get out of control. We see periods of low inflation, high inflation and even deflation (prices of goods and services going down) in various cycles of an economy. Socialist Countries generally tend to see massive inflation as they’re not fiscally disciplined and their debt levels just keep going up so they “inflate it away” at some point. Argentina in 2017 is seeing triple digit inflation. In 2017, we’re seeing low published inflation, but as we all know who are out there living and consuming that inflation is masked by the numbers. For anyone who is purchasing food, building products, health care, education and many other things, inflation is indeed far greater than the published statistics. Deflation is great for consumers as their money goes further but it is terrible for governments as their debts become harder to pay off. In time, inflation has a big impact. Here are a few examples of inflation over long periods of time:
|Item||Cost in 1972||Cost in 2017|
|Average New Home||$27,550||$188,900|
|Gallon of Gas||$0.55||$2.45|
|1 lb of Strawberries||$0.31||$3.22|
|1 lb of Ground Beef||$0.98||$3.45|
Here is a great calculator from the Bureau of Labor that’ll allow you to run any number you’d like over any time horizon in their database. I ran a $1000.00 in January of 1913 is the equivalent of $24,972.756in May of 2017.
See here for a helpful page detailing historical inflation rates from 1914-2017.
Here are some other helpful links with information on inflation.