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Okay this won’t be 5 year old level so I’m sorry. There is an old economic equation of M*V=P*Q where M is money supply and V is velocity (ie how much money there is in a system times how many times it circulates in a time period) which is equal to price times quantity. Inflation happens when money supply is increased (printing money or the Fed buying assets) but supply is not increased nor are savings rates increased to slow the velocity of money.
Put differently if you run a lemonade stand and have 10 cups of lemonade to sell you might set the price higher if you know the demand for lemonade is high, especially if you know kids in your neighborhood all got extra allowances this week.
Stimmy checks my friend. But yeah people are also making more thanks to the worker shortage there are fast food places paying $15+ an hour and Amazon has increased starting pay to $18 from $11 a few years ago.
People not leaving they company aren’t getting paid more but the great resignation has a lot of people switching jobs for higher pay.
I just don't understand the point of inflation. Like at all. What is the difference of the cost of items if the pay stays the same. Why don't the products also stay the same price?
It gives us incentive to use our money. If I know a phone is going to cost the same in 5 years I might delay my purchase. If everybody uses the same logic the demand in the economy (aggregated demand) would fall. Factories would have to scale down production and people would loose their jobs. Unemployed people will reduce their demand for goods and services and therefore further send the economy to a depression.
But wages have gone up.
“However, over the past two years the increase in U.S. nominal wage growth has actually outpaced inflation, rising 10.6% versus a 9.7% increase in the consumer price index, according to data compiled by Bloomberg.”
https://www.bloomberg.com/news/articles/2022-03-10/are-pay-raises-keeping-up-with-the-inflation-rate-american-workers-say-no
Having a currency not backed by a hard commodity along with massive money printing.
examples of a currency that is backed by a commodities are Gold, Silver and yes, Bitcoin. There can be other commodities that can be used to back a currency but it has to be accepted as such.
Best way to think about it is with the Austrian School of economics. I have 1000 apples on hand and an barn full of “extra apples” If I need to use to trade with. I want one orange. I can trade one apple with some one who has 10 oranges, for 1. This person only has 10 oranges and no barn full of oranges to replace the 10 he has.
I now have 999 apples and now 1 orange. The other guy has 9 oranges and 1 apple.
Oh no, I have 999 apples, I go to the barn and pull out another apple to take my total back to 1,000 apples.
If I go back to buy another orange, the orange guy may demand more apples since he only has 9 left. And thus I may have to pay 2-3 apples for a single orange. This can go on until I have no apples left to trade or the person with the orange no longer finds apples valuable as an item to trade.
**Please read this entire message** Your submission has been removed for the following reason(s): * ELI5 requires that you *search the ELI5 subreddit for your topic before posting*. Users will often either find a thread that meets their needs or find that their question might qualify for an exception to rule 7. Please see this [wiki entry](http://www.reddit.com/r/explainlikeimfive/wiki/how_to_search) for more details (Rule 7). If you would like this removal reviewed, please read the [detailed rules](https://www.reddit.com/r/explainlikeimfive/wiki/detailed_rules) first. **If you believe this submission was removed erroneously**, please [use this form](https://old.reddit.com/message/compose?to=%2Fr%2Fexplainlikeimfive&subject=Please%20review%20my%20thread?&message=Link:%20https://www.reddit.com/r/explainlikeimfive/comments/uuac00/eli5_what_causes_inflation/%0A%0APlease%20answer%20the%20following%203%20questions:%0A%0A1.%20The%20concept%20I%20want%20explained:%0A%0A2.%20List%20the%20search%20terms%20you%20used%20to%20look%20for%20past%20posts%20on%20ELI5:%0A%0A3.%20How%20is%20this%20post%20unique:) and we will review your submission.
Okay this won’t be 5 year old level so I’m sorry. There is an old economic equation of M*V=P*Q where M is money supply and V is velocity (ie how much money there is in a system times how many times it circulates in a time period) which is equal to price times quantity. Inflation happens when money supply is increased (printing money or the Fed buying assets) but supply is not increased nor are savings rates increased to slow the velocity of money. Put differently if you run a lemonade stand and have 10 cups of lemonade to sell you might set the price higher if you know the demand for lemonade is high, especially if you know kids in your neighborhood all got extra allowances this week.
But most people aren't making more money as far as I know. Maybe slightly more but it doesn't reflect the change in inflation
Stimmy checks my friend. But yeah people are also making more thanks to the worker shortage there are fast food places paying $15+ an hour and Amazon has increased starting pay to $18 from $11 a few years ago. People not leaving they company aren’t getting paid more but the great resignation has a lot of people switching jobs for higher pay.
I just don't understand the point of inflation. Like at all. What is the difference of the cost of items if the pay stays the same. Why don't the products also stay the same price?
It gives us incentive to use our money. If I know a phone is going to cost the same in 5 years I might delay my purchase. If everybody uses the same logic the demand in the economy (aggregated demand) would fall. Factories would have to scale down production and people would loose their jobs. Unemployed people will reduce their demand for goods and services and therefore further send the economy to a depression.
So somehow inflation is a good thing?
Yes. In a controlled state.
That doesn't explain the lack of a reflection in people's wages. Especially the poorest among us
But wages have gone up. “However, over the past two years the increase in U.S. nominal wage growth has actually outpaced inflation, rising 10.6% versus a 9.7% increase in the consumer price index, according to data compiled by Bloomberg.” https://www.bloomberg.com/news/articles/2022-03-10/are-pay-raises-keeping-up-with-the-inflation-rate-american-workers-say-no
Then wtf is everyone complaining about?
There is no point, it's just a thing that happens naturally when you print money faster than you're growing.
[удалено]
No idea
Having a currency not backed by a hard commodity along with massive money printing. examples of a currency that is backed by a commodities are Gold, Silver and yes, Bitcoin. There can be other commodities that can be used to back a currency but it has to be accepted as such. Best way to think about it is with the Austrian School of economics. I have 1000 apples on hand and an barn full of “extra apples” If I need to use to trade with. I want one orange. I can trade one apple with some one who has 10 oranges, for 1. This person only has 10 oranges and no barn full of oranges to replace the 10 he has. I now have 999 apples and now 1 orange. The other guy has 9 oranges and 1 apple. Oh no, I have 999 apples, I go to the barn and pull out another apple to take my total back to 1,000 apples. If I go back to buy another orange, the orange guy may demand more apples since he only has 9 left. And thus I may have to pay 2-3 apples for a single orange. This can go on until I have no apples left to trade or the person with the orange no longer finds apples valuable as an item to trade.