Infographic Category Finance

A Penny For Your Thoughts

By | source:Ignite Spot Jun 11th, 2021

If you could take a shopping trip back in time with a bag full of dollars, you could return considerably richer than you are in today’s terms.

Although global inflation has slowed somewhat in recent years, over the last hundred years it has certainly reduced the value of the coins in our pockets.

A penny that would cover your daily newspaper in 1910, was completely without worth by 1960. Most of us earn salaries that are adjusted annually to keep up with inflation. Those living on a fixed income, such as pensioners, could, however, see their spending power starkly reduced by inflation. During times of high inflation, shoppers are forced to cut expenses or their savings.

Inflation rates can differ enormously over the years. Towards the end of WWI, the US inflation rate was between 17% and 18%. By 1921 the post-war recession had caused high unemployment and deflation of nearly 11%. These days economists and financiers seem to have better control over the causes of inflation. The last double-digit inflation in the US goes all the way back to the early 1980s.

Countries like Zimbabwe are, however, a stark reminder of what can happen when the government prints money. In March 2020 its average inflation rate was at 676%. So, what you might afford in the morning could be totally unaffordable by noon.

On the other hand, Japan has been fighting deflation for decades. Since 1996, salaries have fallen by 13% adjusted for inflation. As people earn less, they spend less, which causes prices and growth to stagnate.

So, it would seem slow, controlled inflation where your nickel buys a little less each year, may actually be the best balance for the modern economy. To counter inflation, supporters hope that the bitcoin revolution will keep them safe from any inflation in fiat money that gets out of control.