What It Is and What's Being Said
What is it?
Over a period of time, prices on goods rise. It displays a type of 'erosion' to the purchasing power of monetary exchange. In other words, a dollar begins to be less vaulable and not able to buy as much as it once could. Inflation is deterimed by what is called the Consumer Price Index. This is determined by a monthly data of 'changes in the prices paid by urban consumers for a representative basket of goods and services', which is recorded by Bureau of Labor Statistics (BLS). For example,a representative basket that might have cost $100 would now cost $120 at a CPI of 120.
Inflation isn't neccessarily bad, either. Countries actually aim to keep inflation low but positive. Japan has actually experienced 'negative inflation', otherwise known as deflation. Inflation, a little of it, usually between 1-3 percent, can be good for the economy. It ensure that central banks can adjust real interest rates and it encourages people invest in non-monetary capital projects.
Obviously there are negative effects as well. Such as, increasein the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings. In a worse case scenario, with rapid inflation, people may begin to horde goods which therefore would cause a shortage and the future price of such things will increase.
Generally, inflation, specifically hyperinflation, is caused by an excessive amount of growth in the supply of money. Gold and silver standards may show some inflation but what inflates the worse is paper money.
Reported by the Bureau of Labor Statistics, the inflation rates in the United States are recorded monthly and the desired rate is that of 2% but sometimes it over, or under reaches that. As of November 2012, the rate was at 1.80%. From the year 1914 up until 2012, there was an average of around 3.36%. There was a large jump in June of 1920 with an inflation rate of 23.70% and as far down as -15.80% in June of 1921.
What accounts for the Inflation Rate is different things such as shelter (31%), Commodities other than food and energy (20%), Food (14%), Energy (19%), Transportation (6%) and medical care (5.5%).
Though there is no true ideal way of measuring inflation, through these percentages a generalization can be made.
What the News Says?
Los Angeles Times on Sports and Salaries
Outpacing inflation is the soaring salaries of pro athletes. For example, The Dodgers signed Grienke for $147 million dollars over six years which averages out at about $24.5 million as well the five year contract with the Angel for $125 million with Hamilton. Even with salary caps in football and basketball, the pro atletes salaries just continue to climb. Even Babe Ruth, making headlines in 1930 for earning $80,000, was earning an absurd amount of money for his time. He earned even more than President Hoover that year.
The average of MLB salaries went from $371,000 up to $3.2 million since 1985. The NBA salary went from $371,000 up to $5.2 million in that same amount of time as well as the NFL salary going from $194,000 on up to $1.9 million.
Unfortunately, every-day people don't experience such luck with salary raises. The average income only went from $23,618 to $49,777 from the year 1985 but that only accounts for the fact it raised just enough to be kept at par with over all inflation
In other words, while pro athletes get to enjoy salaries that outpace inflation, middle class families and workers ar ekept up enough with the inflation to keep a basic standard of living. Much far less increase in average income than the athletes.
Washington (Reuters) on Inflation and Government SS
The White House stated that the proposal to change inflation adjustents to Social Security benefits would actually effect other programs that use the Consumer Price Index. This was part of compromise by Barack Obama to try and reduce deficit but if other programs are effected, people could lose benefits, right? Well, the change was characterized as 'technical' and the elderly, and other vulnerable groups, would in fact, be protected from harsh adjustments made to the Social Security benefits payment.
Although some programs may be lost, the groups who depend on the government programs should br protected.
Reuters- On Name Brand Drugs
Inflation on popular branded drugs is even higher, six times higher in fact, than the overall rate of inflation for consumer goods. Spending on such specialty medications is up nearly 23%. According to data fro Express Scripts based on its first quarterly drug trend report.
Inflation on drugs easily outpaces the 2% economic inflation- for example, a collection of the most widely used brand names rose 13.3% from September of 2011 to 2012. Because of the spending on name brands, generic brands dropped 21.9% for prices. The use of such generic brands is actually approaching that of 80% of people.
The 35.% in the price difference between name brand and generic brands is the largest gap in prices since the Express Scripts began recording the Prescription Price Index in 2008.
One of the categories that they record is that of Specialty Drugs which showed some large jumps in prices. There was a large inflation of price for new treatments of hepatitis C. Spending went up 117.3% over 2011 levels.
A Bit of Local News
Steuben Courier- John P. Napolitano
Inflation has not been discussed too much recently since the rate has remained quite 'flat' but now, because of recent 'quantative-easing', people are worried about future inflation.
Quantative Easing is when more money is printed to circulate through the economy to try and help create more jobs and spur economic growth. The problem is, the more money there is, the less it is worth. For example, $100,000 in 1990 is equal to that of $167,338 today.
Though there is no true way to predict inflation, the CPI gives some of the better guesses. Note, food and energy are generally excluded from this because of the major fluctuating prices. It would cause too broad a rise or fall in prices. This would keep the range misleading and make inflation appear to be far worse than it really is.
It also does not account for improvements one might add to a car or house. For example, a car can be worth twice as much as when it was first bought but, this does not include the upgrades. Upgrades for perhaps safety or family. Some scholars believe that most of life's luxuries have become pricier, faster than the CPI accounts for. Such trends will always affect American's, and the world's finances.
No one truly knows what will happen with inflation and Americans can only try their best to keep up. Neccessities will always come first but people will always want those luxuries to make life more comfortable. Many are willing to pay a higher price if there is no alternative. As more people want it, and more money is put into circulation, the more expensive things will get.
The National Inflation Association
"....an organization that is dedicated to preparing Americans for hyperinflation and helping Americans not only survive but prosper in the upcoming hyperinflation crisis...'
The US' debt only continues to grow. It has over $76 trillion in total debt obligations. In February of 2011 it was already at $222.5 billion, more than the entire year of 2007. And in 2010, even though the budget was $1.3 trillion, after factors like medicare and Social Security are added in, there was a total of over $5 trillion. The NIA believes that it is impossible for the US to completely pay off its debt, let alone be able to balance its economy again. It had been predicted that the deficit in 2011 would take up 43% of the budget for the total government spending. For other countries, this happened just before hyperinflation took place.
Usually the US is able to export its inflation by the fact the US dollar's status had been the world's reserve currency. But now, the Federal reserve has monetized the United States' debt by buying 70% of US treasuries as opposed to 10% while other countries are now only buying 30% as opposed to the usual 50%. Americans that are dependent on government programs such as food stamps, medicare, unemployment and so on could then not thrive because such programs would being to disappear.
The goal of the NIA is too prepare Americans for such a scenario. For example, they encourage people to make investments in companies that deal with Gold and Silver, as well as Agriculture Producers since such companies have historically prospered in inflationary times.
Though inflation is not the worse thing in the world, it is possible that the dollar becomes worth so little that few people can afford to truly live. Those with more money are less effected than people just passing the United State's poverty line. Only a small percent of Americans will be able to thrive in such an enviornment. The government needs to continue to make sure that inflation doesn't get out of hand. Putting too much money into the economy is certainly not the answer.