Long Listening · Section 7

Inflation

We are experiencing a lot of inflation in many countries around the world and a lot of places have had A lot of issues

Level: A2 · 295 sentences

Transcript

We are experiencing a lot of inflation in many countries around the world
and a lot of places have had A lot of issues
because of inflation, economies have been hurt,
and people have had a hard time
because of inflation in this recent period.
And remember that I'm recording this in 2023,
so if you're listening to this in a future year,
then this might not be as relevant,
but during this time that I'm recording this episode,
inflation is a hot topic and many people
are talking about this and complaining about it.
And so I thought this would be a good topic to discuss in today's episode.
So we'll talk about what inflation is,
the causes and effects of inflation.
We'll talk about some countries that have very high inflation right now
and what people do during times of high inflation.
So this should be a really interesting episode.
I'm excited for it.
Okay, let's talk about inflation.
First of all, what is inflation?
People might have different definitions of inflation
and people think about this topic in different ways,
but I'll just give an overall definition
that most people would be happy with.
And that is inflation means that there is an increase in prices
and a fall in purchasing power.
What does purchasing power mean?
This just means that your money buys less stuff.
You can't buy as much stuff with the same amount of money
that you used to be able to buy.
So that's a fall in purchasing power.
So that's inflation.
And many of us...
struggling right now with inflation in our different countries
because over the past couple years
we've seen a lot of inflation around the world
so let's talk about some causes of inflation
there are different causes it's not just one particular thing
there could be Certain things that come from the demand side,
meaning the consumer who is buying products or services.
And there could be causes from the supply side,
from the people that are producing these goods and services.
Maybe the cost of production has gone up for them
and they can't produce as much stuff.
or they need to raise prices
because of problems with the supply side.
So there are a lot of different things
that can affect and influence the inflation rate.
But let me just talk about maybe the overall
idea of what causes inflation.
Of course, this isn't necessarily the most detailed
explanation, but I think it kind of summarizes everything.
So inflation is caused by having more currency units
that are chasing goods and services
without a greater increase in production of those goods and services.
Okay, that might be a little hard for you to understand.
Let me explain it.
So a currency unit just refers to one dollar
or one euro or whatever, right?
A currency refers to the different money
that we use in different countries, right?
So the dollar is a currency, the euro is a currency, etc.
So when we have more dollars, for example,
in circulation, but we don't have the same increase
in the production of goods and services.
If there isn't an increase or if there's a decrease
or if there's an increase but not enough of an increase,
this will result in higher prices.
It will result in inflation.
Think of a basic example, right?
In the years 2020 and 2021, in many places,
for example, in the United States, the government
gave out a lot of free dollars to people.
A lot of people received stimulus checks
and there were other forms of stimulus
that produced more dollars, more of these currency units, right?
However, this didn't increase the amount of goods
and services that were created.
And so we had more dollars,
but we didn't necessarily have more goods and services.
So people might have felt richer
because suddenly they had more money in their bank account.
However, when you just increase the money supply,
that simply means that prices will go up,
because now there is more money in the system
that is chasing the same amount of goods and services.
So that makes the price of these things go up.
That's just logic, right?
So that's what happens when you suddenly increase the currency
and there are more dollars or more euros.
It makes prices go up, right?
And you can increase the amount of currency in a system
without price inflation if you the production of goods
and services increases even more than the increase in the currency.
So a good example of this was in the late 1800s
in the US, when there was actually an increase in the overall
currency, the amount of currency units in the system,
However, prices actually went down.
How did that happen?
Well, it's because there was so much
production of goods and services and that production
was even greater than the increase in the money supply.
So even though the money supply expanded,
prices actually went down because more things were produced.
So you can see that there are a lot of factors at play
in terms of the causes of inflation and how inflation happens.
Let's talk about the effects of inflation now.
So when there's inflation, when there's a lot of inflation especially,
people are not encouraged to save.
People are actually encouraged to to spend and invest.
For example, let's pretend you have $10
and the rate of inflation is very high right now.
And you put your $10 in a bank account,
a savings account, and it has a low interest rate
and that $10 increases a little bit,
but the rate of inflation is 10%.
maybe and then maybe next year
your ten dollars has grown to ten dollars
and five cents in that savings account
but the purchasing power has gone down for those ten dollars
now instead of needing ten dollars to buy a hamburger
it takes eleven dollars so even though you saved
$10 and you earned a little bit of interest,
the rate of inflation went up higher
and you actually lost purchasing power.
You see how that works?
So people are not as encouraged to save
because usually the rate of inflation kills their savings.
It makes their savings less valuable.
So instead of that, People are encouraged to spend money now
because prices increase in the future if there is inflation.
And so people want to buy things now before prices increase.
And people want to invest their money in something
that will provide them a return
that's greater than the rate of inflation.
So if inflation is 10%, you want to earn at least 11%
with your investments so that you can beat
the rate of inflation and your purchasing power won't go down, right?
So in the opposite scenario, if there is deflation, this has the opposite effect.
It encourages people to save money
because their money will actually be worth more
next year than it's worth now
so you put your ten dollars in a savings account
and maybe that grows to ten dollars and five cents next year
or maybe it doesn't maybe it's just ten dollars still however
that ten dollars buys more next year because prices have gone down
and you've received an increase in your purchasing power
So that's what happens when there's deflation.
And in many cases, deflation might result in less investment
because people don't need to chase the best forms of investment
to beat the rate of inflation because there is no inflation.
There is deflation.
So people... don't need to search for those investments
they can just keep their money in a bank account
and it grows in real value over time
because prices are going down so you see how inflation
and deflation encourage the opposite behavior right
and when it comes to wages
the word wages just refers to the amount of money
that you make, specifically the amount of money you make per hour.
So when it comes to wages and your income,
this never keeps up with inflation if there's high inflation.
So if there's 10% inflation, your wages are probably not going to go up
by the same amount at the same time, right?
You might receive raises over time.
Your boss might raise your salary.
However, your overall purchasing power is not increasing
because prices are increasing faster than your wages.
So even though you might make more money
in one year, your real wage is actually less.
When I say your real wage,
I'm referring to your real wage adjusted for inflation, right?
So even though your income might increase,
life continues to get harder and harder to afford.
The verb afford is used to say
that you can pay for something.
So if I say I can't afford that car,
I'm saying I don't have enough money to buy that car
so life gets harder and harder to afford
because your income doesn't increase as fast as inflation increases
and another reason why life gets harder to afford
is because interest rates often rise when we have high inflation
and so for example it might be a lot more expensive
to get a loan from the bank
or to pay back money that you've borrowed.
So things get harder to afford overall.
And so, of course, there are many negative effects of inflation.
This is something that hurts people very badly in many cases.
what are some countries that have high inflation right now
in 2023 so i'll mention a few of them here
but there are many other countries
that also have pretty high inflation currently
but here are a few of them Venezuela has around
400 inflation that's really really high so imagine prices today being 400
what they were last year right that's not a good situation
of course uh in the country of Lebanon
um recently there was over 250 inflation really really high in Argentina
inflation has been a big problem in recent years
And the rate of inflation has reached to over 100%.
And inflation is also a big issue in Turkey right now.
It's close to 50% at the time of recording this.
So there are some countries right now
that are dealing with major problems because of really high inflation.
And maybe you live...
in one of these countries and you know exactly what I'm talking about.
It's not a good situation to be in.
And how about the US?
Well, of course, the US doesn't have inflation
anywhere near some of these other countries.
However, in June of 2022, it reached 9.1%, 9.1%,
which was the highest rate in many years in the US.
And to be honest, that 9.1% 9.1% is understated.
When I say that it's understated,
I'm saying that in reality, it's more.
So when we see the official rate of inflation in the US,
we know that in reality, it's even higher than what they're saying it is.
But that 9.1%, 9.1%, was the highest in many years
the rate of inflation has gone down this year
however at the time of recording this we still have inflation
so prices are still increasing but by less
right because we don't have deflation yet prices aren't going down
yet but they're going up at slower pace
than they were a year ago, for example.
But the US has dealt with a lot of inflation recently,
and the percentage in the US
might not seem very high to you depending on where you live,
but people definitely feel it here.
And lastly, what do people do during periods of high inflation or hyperinflation?
Well, one thing is that people
who live in a country with really high inflation,
they tend to immediately exchange their money once they've earned it
for another more stable currency or for precious metals.
When I use the phrase precious metals,
I'm talking about things like gold and silver, right?
So, for example, in Turkey right now,
if people receive their income in the local currency,
they might try to immediately exchange that for US dollars
or for euros or for gold,
for example, so that they don't lose purchasing power,
so that their money doesn't deteriorate by tomorrow or next week.
They want something more stable, right?
So that's something that happens in many places.
But in a place like the US,
it doesn't happen the same way because we have the US dollar.
And so the US dollar is generally considered to be the safe,
stable currency that other people look to for refuge.
When I say the word refuge,
I'm talking about protection and safety, right?
So we have this currency already.
So when we deal with inflation, we can't
do the same thing with another currency the way that other countries
do this because the people in those countries might exchange
their currency for dollars but we already earn dollars
and so most people in the U.S. U.S. don't really have this option
we don't think about exchanging our currency for another more stable one
right we can exchange our dollars for precious metals of course,
and some people do that, but we don't really have the option
of exchanging our dollars for a more stable currency
because we have the currency that people usually view as the safe currency, right?
The safest and most stable one, right?
So that's a little bit different in the US.
And a lot of times during periods of really high inflation,
the government in that country will make it illegal to exchange
over a certain amount of money for dollars or euros or whatever.
And if that's the case, then people create a black market
for dollars or euros or whatever.
So people... exchange this illegally because they need a more stable currency
and if the government doesn't let them have one
then they'll get it illegally so that's another thing that happens
something else that happens is that people try to invest their money
quickly in something that's going to give them a real return
They don't want to just hold their currency.
They might exchange it for another currency or precious metals
or invest it in something that will gain in value
to a greater degree than the rate of inflation.
And so they might try to buy something,
some asset, so that they can beat inflation.
By the way, the word asset in this context refers to something
that you own that can produce a positive economic effect for you.
For example, like owning a property, right, or owning a stock.
So people might try to find assets that will grow
faster in value than the rate of inflation.
And another thing people might do is buy things now
rather than later because they know
that prices will increase in the future, so they buy things now.
And in really extreme examples of hyperinflation, people will just
immediately buy things once they get paid in their local currency.
They might immediately buy milk or buy rice or buy something
because they know that it's better to do that right now
than wait a week when the price is higher.
And if they buy something real now,
it will increase in value very, very fast.
And one last thing that might happen is that people...
might leave their country unfortunately and look for a more stable situation
so that's what might happen in times of very high inflation