Inflation is always a controversial topic in the economic field. Even the use of the term "inflation" has many different meanings depending on the context. A large part of economists, businessmen and politicians said that a moderate level of inflation is necessary to promote consumer wheels. They argue that high spending plays a key role in promoting economic growth.

The US Federal Reserve (Fed) often sets the goal of controlling inflation in moderation in the long term. Their view is that the price increases slowly will help businesses maintain profits and at the same time, prevent psychological waiting for consumer prices before deciding to buy. Some even suggested that the main function of inflation is to prevent deflation - a phenomenon that is like the "nightmare" of the economy.

However, in the opposite direction, many people think that inflation does not bring many benefits, even a barrier to economic development. The escalating price makes it more difficult to accumulate, and push people into risk investment options to increase or at least preserve assets. This view also emphasizes that inflation can benefit some groups of businesses or individuals, but it is detrimental to other subjects. So really inflation or not? And why should it not be equal to 0?

Understand inflation

The term "inflation" is often used in everyday life to describe the price increase of some essential items such as oil or food. For example, when the oil price escalated from US $ 75 to US $ 100 per barrel, the input cost for the business and the shipping costs increased. This creates an increase in price chain effects to increase costs. However, economic experts have a deeper view of inflation. Accordingly, inflation is defined as the result of interaction between supply and demand.

In other words, when the amount of money is put into circulation, the value of each currency will decrease to force the overall price to increase to balance. Inflation affects the economy in many ways but the most noticeable consequence is reduced purchasing power. Although the currency face value does not change, in the period of inflation and the amount of money will buy less goods and services. This means that even if the employee is raised to the Buddha so that the cost of living, they still feel weaving the loss in their ability to spend from daily consumer goods, rent Until other expenses. In order to control the inflation of the US Federal Reserve often apply the typical monetary tightening policy, the federal interest rate increased this move to create a domino effect in the financial market, pushing the loan interest rate in general. Including credit card interest rates increased.

High interest rates make the loan cost more expensive, negative impact on the business economy, afraid to invest. Consumers limit spending leading to reduced production and economic growth. In this context, the profitability of the enterprise has decreased, the risk of labor dismissal, increasing the pressure on households. This negative impact chain can lead to an unexpected outcome, recession. The problem for the US Federal Reserve is to find a way to balance inflation control and maintain an acceptable unemployment rate. However, these two goals often go in the opposite direction.

Monetary tightening policy can help curb inflation but have the potential to increase the unemployment rate and push the economy into a recession for a long time. Economic world believes that the inversely proportional relationship between inflation and unemployment is illustrated through the Philips curve. Accordingly, the increasing unemployment rate can be resolved by accepting inflation increasing. However, this theory was questioned in the 1970s when the United States fell into a stagnant inflation, a rare economic phenomenon when inflation increased along with high unemployment rates and increased. Economic chief stagnated.

Who benefits and who suffers from inflation?

The impact of inflation on each individual and group of people is different, the most beneficiaries are the borrowers, the homeowner has a mortgage loan, a stable job and a foreign currency holder. . Inflation causes the value of money to decrease over time, which means that the amount of money the borrowers pay in the future has a lower actual value than the time they borrow. For example, if you borrow $ 10,000 in the period of high inflation, this debt will reduce value over time to make it easier for you to repay the debt.

Inflation can also push housing prices rising. This helps owners to increase asset value and reduce debt burden. However, this is only true for loans with fixed interest rates, if the interest rate floating interest rate may increase with inflation, reducing the interests of the borrower. In the inflation period, businesses often cut costs by dismissing employees or cutting wages. However, people who have a stable job and are likely to negotiate the salary will be less affected by inflation. In addition, the local currency often depreciates compared to strong foreign currencies. This creates an advantage for those who hold foreign currencies because they can change to the local currency with a bargain exchange rate. People who suffer from inflation are often consumers who want to buy houses and people who live on their pensions.

Inflation causes rising prices of goods and services to reduce the purchasing power of consumers, especially those with fixed income or increased slower than inflation will have many difficulties in covering life. Inflation pushes housing prices high, this makes many people especially young people and low -income people, hard to buy houses. People who live on pensions or fixed income will also be heavily affected by inflation because the actual value of the money they receive will decrease over time. Although social security and other government welfare are adjusted according to inflation, increasing welfare is often slower than the price increase. This causes retired people to face the risk of purchasing power and difficulty in maintaining living standards.

Why should inflation should not be equal?

In 2022, most of the world experienced an extraordinary high inflation period in My Anh and Eurozone, which reached a peak of about 10%, meaning that the average price is 10% higher than a year ago. Although this number may surprise many people. But the good news is that the current inflation is close to normal, although it is still a bit high. However, the worrying thing is that inflation charts only show the change rate, which does not mean that the price is reducing them simply stops rapidly increasing and this still causes many difficulties in consumers, stress Because the price escalated. Businesses struggling to maintain operations and governments must seek to control the situation. But amid the concerns about the current inflation of an often a question that is a little "inflation is a good thing".

The fact is that many economic experts believe that a certain level of inflation is necessary for a healthy economy. So why is the cost of capital causing difficulties for everyone to be considered beneficial? Why can't inflation be equal? There are a number of reasons that inflation cannot and should not be at zero, first governments and central banks do not want that many countries. Actively pursue the so -called inflation target of about 2% as in the US today. This figure is considered a whirlpool of salary price in the economy.

So how this salary price vortex operates in the period when the price increases, people tend to predict the price will continue to rise. This encourages them to spend immediately for large and durable items such as cars, or household items to avoid paying more money for the same product later. At the same time, essential items such as food and clothing are also more expensive, forcing consumers to spend more.

As a result, companies that make more profits create more jobs and increase income for workers this, which continues to promote demand and push prices higher to form a closed circle. The key point of this salary price vortex as long as the salary increases with inflation, people can still buy the same amount of goods. However, this does not always happen. For example, in the US, the salary growth has lagged behind inflation for 2 years. Until mid -2023 this trend began to reverse. Obviously, the increase in salary is a good signal, but it does not mean that the current salary is high enough. Karma can lead to rising inflation, as we have witnessed over the past few years. As mentioned to control government inflation can use tools such as increasing interest rates.

This makes the loan more expensive, thereby restraining spending and investing in the economy, which is the measure that the US Federal Reserve has implemented by 2022 contributing to the abuse. Ising that close to the target 2%. However, increasing interest rates also put financial pressure on households, especially those who have to borrow to cover their lives. Therefore, the magic must carefully consider the control of inflation and maintain economic growth. In contrast to inflation, the deflation means that the price drops. At first, it sounds positive, but it can also create a negative whirlpool when the price drops. Consumers delayed shopping in the hope that the price will continue to decrease in the future.

This causes businesses to reduce revenue forcing them to squeeze the cost of dismissing employees and continue to lower the price to attract buyers as the result that the economy falls into a vicious cycle, reducing the demand for decline and growth. The decline is very difficult to overcome because the government, not many effective tools to deal with it as with historical inflation for the loss of deflation often require strong pushes to the economy, for example Like life, the recession is only resolved by the explosion of World War II when the Government increased spending and creating jobs. Because of the hidden risks of reduction of 2% inflation targets, it becomes important to create a safe buffer zone that allows central banks to have.

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