Ever wonder why the price of goods and services are continually increasing? Well you’re not alone; many Americans often wonder the same question. In short, the answer is something called inflation.
Inflation is defined as the rate at which the cost of a good or service increases. Although prices can fluctuate for a number of reasons, inflation is generally a result of an increase in the supply of money—commonly due to actions taken by the Federal Reserve. In short, as more money becomes available, the purchasing power of a single dollar drops. As the value of currency decreases, the price of goods and services seemingly increase.
Inflation affects virtually every product and service.
For example, in 1970, the average cup of coffee was $0.25. Since then the price has increased to an average of $1.59. Another example is the increased cost in haircuts. For men, a haircut 50 or 60 years ago would only cost a few dollars. Now, the average cost for a men’s haircut is $28.
Inflation may make your head spin while shopping, but a small amount of inflation is healthy and can be a good thing. For example, it can push wages up or make a mortgage or car payment more affordable. Prices may be rising, but so is your ability to cover the costs.
Interested in seeing how the products and services you use have been impacted by inflation? Use this inflation calculator.