Inflation: Beyond the definition
'Humare time pe 10 rupaye me itna saara aata tha!' - the 2nd most cliche thing that grandparents say after 'Muze jaane se pehle Pote k sath khelna hai beta.'
This, in a nutshell, is inflation - The first sentence. Second one is a hint of inevitability mixed with sexism.
There are 2 ways you can look at inflation. The first one - prices of commodities rise. Second one, which sneaks up on retail buyers - shrinkflation. Price of packed goods remains the same while quantity decreases. Remember Rs.10 ka Maggie 10 years ago and now? Yeah, that.
Why TF does it even happen?
There could be multiple causes. Healthier ones being higher demand due to economic growth and increase in employment. Unhealthier ones would be supply chain bottlenecks and the worse, printing money like photocopy shops on the last day of engineering project submissions.
How does Printing money cause inflation? - In a nutshell
I would have been in 4th or 5th grade when I caught my 1st rare Pokémon. I ran to my friends to flaunt my Growlithe off.. right after I finished the packet of Cheetos and licked my fingers clean. A tazo-rich friend of mine offered me 25 common tazos in exchange for my Growlithe, which I declined. I kept it safely in my drawer so I could exchange it later for a better deal. A week or two later, every other guy started getting Growlithe tazos in their packets of Cheetos. Soon, no one would give more than 2-3 common tazos in exchange of Growlithe. What happened? Some SOB at Cheetos factory grew overly fond of Growlithe and printed a shitload of them, flooding the market with these- once rare- majestic canines. The value of Growlithe tanked as it was not as rare anymore. My world crumbled around me like the 2008 crisis.
Well, this is inflation. The rare Growlithe tazo is your national currency like Rupee, drawer is your FD, the common tazos which you would get in exchange of this rare tazo are your commodities, food, power, fuel, etc. and that SOB who printed shitload of Growlithe is your government.
You would know how the US dollar was backed by gold until 1971 if you have read my previous blog - Cool leopard fur pants don't come out of thin air - History of Money and where it went wrong. After the world currencies were no longer tied to supply and availability of gold, governments could just print money without requiring any additional work apart from turning on the printer switch. Every time a country would be threatened by recession-like conditions or politicians wanted to buy new Mercedes for themselves, the supply of money would be increased.
Simply thinking about increased prices might not make you appreciate the gravity of the situation. Instead, think of it as value of your money dropping every moment. The only way to hedge your net worth is to invest in assets which will return higher yields than the overall inflation.
In the next part, I will discuss topic in depth along with few real life examples. So subscribe to the newsletter!
-Macro Bullish
Comentarios