While inflation takes it's toll on peoples budgets it seems to be something that will never be escaped and something that we'll always survive. Now with this in mind, can someone please explain to me exactly why we have inflation. It seems like year on year prices increase, and salaries increase to follow suit - so why not keep prices constant and salaries the same? There must be a reason that I'm failing to understand - please will someone educate me?
Obnoxio The Clown
So what you’re saying is that nobody is ever allowed to get a pay rise?
Why don’t you lead by example then, mate? :o)
Paul
Post authorIt’s not exactly what I’m saying. Each year we get salary adjustments that are intended to compensate for inflation. If there was not inflation – so if everything stayed the same price year on year – then there would be no need for this increase.
Normal performance-related, or promotion increases are a different matter of course.
I just can’t figure out why inflation exists. Perhaps it’s because potato farmers want to earn more money, so they increase the price of potatoes – this means that potato wholesalers have to increase their prices, and in turn supermarkets have to adjust, which is where you and I come in. Our salaries have to adjust so that we can continue to buy potatoes… and voila, the farmers trick has succeeded… only, now the tomato farmer has to put food on the table, as do his workers… so he increases the price of tomatoes, in order to pay his workers more, and so that they can all still buy potatoes… ah, a cyclic chain reaction that goes on for ever.
Can it be as simple as that?
Pedro
Hi Paul, If there was an “Inflation for dummies” book I would read it and then pass it to you. Just kdding…..When I studied my economics at Univ. in Italy, we were just out of a 15 years fast economy paired with hi interests, high debt, and hi inflation. Whatever used to cost 1 lira during my primary school would, 15 days down the road, cost me 500 liras, just to put you in perspective.
To simplify it, as there are so many factors involved, it all started in the ’70 with a huge oil crisis, prices skyrocketing from one day to another and people queueing at gas stations that didn’t know at which price they should sell the precious and scarce commodity, some sort of zimbabwe of our times, worldwide though.
this event innescate a spiral, salaries needed to be adjusted yearly, prices accordingly, money had to be printed and issued in the system and so on, forcing every player to stay in the game at it’s best. We had a mechanism, ratified by government, called the “escalator” to adjust automatically salaries and contracts, thus helping the inflation to gallop. The only people laughing all the way until now were the 5 sisters of oil and the sheiks of Saudi Arabia. We are still paying and we will pay still for a while, for their luxury yachts, if we don’t find an alternative source of energy. But of course this is only one way to see it. I wait until I can find out if I can run my bakkie with the wine I don’t like.
Pedro
Pedro
I forgot to mention that during the 15 years of inflation Italy got in the G8 as one of the most industrialized countries in the World, therefore not all inflation is bad, if under control and paider with “real” development. That’s one reason why I moved from Italy to SOuth Africa. Just kidding, it was the girls who attracted me….!!!
pedro
Paul
Post authorThanks for the your explanation Pedro. So, it wasn’t potato farmers then… it was those slippery oil miner types. :)
I follow your explanation, but there are still so many things unclear. Perhaps I should check to see if that Inflation for Dummies book exists – it should make a fascinating read. ;)
Oh, and about moving to South Africa. Of course it was for the girls!