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NEW YORK – If inflation drops to 2% by the end of this year, that means the price of everything won’t go up, right? Error. But that’s what the majority of UK residents think, according to new research by polling group Survive.
What’s more, a third of those surveyed said they thought they would pay less than they do now.
It is a common misconception that falling inflation equates to falling prices. But the two don’t always go together.
Inflation vs
Inflation is the rate at which the price of goods and services increases throughout the economy over a period of time. When inflation increases, it means that you will have to spend more money to buy the same goods and services as before.
Inflation, on the other hand, is when goods and services become cheaper. Any money you earn today means it will expand even further in the future.
China is one of the few countries on the brink of inflation. Most other countries – With the exception of the United Kingdom, consumer prices last month were still an average of 8.7% higher than a year ago – experiencing so-called inflation.
So what is inflation?
When the rate of inflation slows down.
For example, goods and services sold in the United States cost 9.1% more than in June 2021. The latest Consumer Price Index report showed a 4% increase from last year.
That means goods and services are still more expensive than they were a year ago. But the price increase is less than a year ago.
Like many central banks, including the Bank of England and the European Central Bank, the US Federal Reserve targets 2 percent annual inflation. This means that global central banks do not want goods and services to be cheap. Instead, they want prices to rise a little more each year so that people don’t delay purchases that help boost the economy.
Risks of depreciation
Inflation is more dangerous than inflation in many ways.
If you think prices will drop in the future, you might delay making more purchases today. When most people start thinking like that, people spend very little money. That could cause employers to lay off workers and send the economy into recession.
It is also very difficult for central banks to keep the economy growing if it enters a period of inflation and deflation.
Japan’s period from 1991 to 2001 was dubbed the “Lost Decade” when its economy experienced a period of deflation. He took stimulatory steps over the next decade to reintroduce inflation to boost the economy.
By contrast, in the United States, it took the Fed nearly a year to raise interest rates and bring inflation down to a level that still doubles.
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