Someone explain inflation to me

[Suave]

Why do prices and sallaries increase continually?

[L'EMMERDEUR]

Because our corporate and government masters have no interest in sharing the benefits of economic progress?

[leitwolf]

Because banks (or everyone who lends money) receive more money than they were giving out as loans, and thus create more money through interest.

Since the cap on what all the money in the world can buy theoretically is limited by the ammount of goods/service produced a year, the numerical value vs it's actual value increases - hence inflation.

[Odee]

Originally posted by Suave
Why do prices and sallaries increase continually?

short answer...  would never be accurate enough to explain why.
There is not enough space on this server to show you all the causes and effects that affect inflation.  Then again, if we devoted all server space to it, there may well be room enough.

[Thrawn]

In the US it's because the federal government gave a monopoly for printing bank notes to the Federal Reserve bank and they can print off as much cash as they want to (about $50 billion a week).

This causes a greater supply of money and it follows that the money is worth less.

[Viking]

Originally posted by Suave
Why do prices and sallaries increase continually?

It is deceptively simple: Employees demand better wages for their work. This increases operating costs for the employer. The employer must compensate for the increased costs by raising prices. The government must print more money to satisfy the increased demand for currency in circulation, thereby reducing the value of each unit of currency (one US Dollar in your case).

The next year the employees demand another raise since everything now cost more, and the vicious circle continues.

[lasersailor184]

Easy answer:  Inflation happens because the dollar (as well as many other currencies) aren't literally worth anything but the paper they are printed on.  In the old days, the paper money wasn't actually the currency, but a receipt to a valuable metal or object.  

Same as it was back then, it is impractical to carry around several hundred pounds of valuable metal.  So you carry around the receipts to several hundred pounds of valuable metal.  Should the owner so choose, at any time he could take the receipts in and get the equivalent amount of metal back.


These first receipt issuers were soon to be bankers.  The bankers started loaning out money.  However, they realized that they could loan out more "Money" then the worth of gold that they had in their stockpile.  

Problems came, but it wasn't ever really fixed.


Fast forward several thousand years, and you have the modern governments.  THEY decide it's impractical to keep millions of pounds of valuable metal (gold, silver) in worth to back up the money, so they decide to get rid of it and switch to a FIAT system.  This system is where the value of the money is determined by supply and demand.  

Should the demand go up, the price goes up or visa-versa as seen in currency exchanges.  Should the supply go up, the price goes down, as seen in inflation.  


Oh, and in case you're wondering, to you, the common man, inflation really isn't a bad thing unless you keep your cash under your mattress, where it can't grow, but just devalue.

[FiLtH]

Ya see...you put the nozzle on the valve. The air enters the tire building pressure, thus inflating the tire. Its all very simple. Don't know where ^these guys are going with all this other stuff.

[Sundowner]

There is a common misconception that most money is "printed".
Today ,the vast majority of money is digital: credit entered into a computer out of thin air as loans are issued by the banks.

Here is an informative video on how the worlds money system works today.

http://www.youtube.com/watch?v=K91kvoW9lV8

Regards,
Sun

[Jackal1]

Originally posted by Suave
Someone explain inflation to me

It is the process of increasing the air pressure in a tire, basketball, football or your prom date that was recently ordered. This is usualy accomplished with the aid of a device such as a pump or compressor.

[Nilsen]

Originally posted by Suave
Someone explain inflation to me

[Rolex]

Why do prices and sallaries increase continually?[sic]

They don't.

[Halo]

(quote)
--------------------------------------------------------------------------------
Originally posted by Suave
Why do prices and sallaries increase continually?
--------------------------------------------------------------------------------

It is deceptively simple: Employees demand better wages for their work. This increases operating costs for the employer. The employer must compensate for the increased costs by raising prices. The government must print more money to satisfy the increased demand for currency in circulation, thereby reducing the value of each unit of currency (one US Dollar in your case).

The next year the employees demand another raise since everything now cost more, and the vicious circle continues.

(unquote)

I like Viking's explanation and Nilsen's example.

[Rotax447]

Lest Adam Smith spend too much time spinning in his grave, I'll give you an example of why we have inflation.

Walk into your local Best Buy store in 2007, and look at the consumer products on the shelf.  These products did not exist in 1977.  Walk into your local Sears store, and look in the home appliance section.  Washers, dryers, kitchen ranges, lawn mowers, these products did exist in 1977.

In order to afford the additional consumer products that technology brings us, we must inflate the money supply.  

Without inflation there is no growth...

[FrodeMk3]

Suave, Odee had the best answer of them all.

You almost have to get up early in the morning, and watch shows like marketwatch, and moneyline, to even begin to get a grasp on all the factors that effect our economy. A rise in the price of Diesel fuel, for instance, drives freight rates up, thereby affecting the price on the shelf; wages, too. Or speculation on real estate. Deregulation of businesses' such as utility companies, Thereby raising the rates for electricity, water, etc., Thus making a rise in the cost of living. There's many things to consider.