6 facts about inflation you should know

  1. Inflation is an increase in the general level of prices of goods and services over a period of time: the inflation rate is the annualized percentage change in the general price index (consumer price index)

  2. When prices increase we have less money at our disposal to buy goods and services: inflation reflects a reduction in our purchasing power
  3. If we lose purchasing power we buy less; and if we all buy less companies shut down and people lose their jobs
  4. Printing money so we all can continue buying and keep our jobs is not the solution; in fact, it’s like adding wood to the fire: an increase in circulating money can cause an increase in the demand of a certain good or service, the price of which will increase because offer will not meet demand levels
  5. Without external controls, inflation generates inflation in an upward spiral: an increase in prices causes us to lose purchasing power, so we’ll want to earn more which causes production costs to increase, so prices will increase causing us to lose again purchasing power…
  6. The European Central Bank’s main task is to maintain the euro’s purchasing power and thus price stability in the euro area, by keeping inflation below, but close to, 2% in the medium term.

 

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