Welcome to the Listening Time podcast.
Hey everybody, this is Connor and you're listening to episode 121 of the Listening Time podcast.
Thank you all for listening.
I hope you're all doing great.
The topic of today's episode is a really interesting one, and I think that most of you are going to like this one, because it's something that most of us or maybe all of us are currently dealing with, or are at least having to think about a little bit, which is 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 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 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 what people do during times of high inflation.
So this should be a really interesting episode.
I'm excited for it.
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All right, let's get started.
Are your ears ready?
You know what time it is.
It's listening time!
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 are 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 side, 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.
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 and 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.
And you can increase the amount of currency in a system without price inflation if 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 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 ten dollars increases a little bit but the rate of inflation is ten percent.
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 10.
Now, instead of needing $10 to buy a hamburger, it takes $11.
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 drop 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 $10.05 next year.
Or maybe it doesn't.
Maybe it's just $10 still.
However, that 10 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?
So you might receive raises over time.
Your boss might raise your salary, right?
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.
So 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.
That's not a good situation, of course.
In the country of Lebanon, recently there was over 250% inflation.
Really, really high inflation.
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 91, which was the highest rate in many years in the US.
And to be honest, that 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 91 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 a 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 US 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 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.
All right, I think that's all for today.
Hopefully this topic was interesting for you.
Hopefully it was educational.
And I know it's not the funnest topic, but I think it's interesting because a lot of us are dealing with this now.
Remember that you can sign up for my new podcast if you want to hear real conversations in English, with the transcript of course.
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And you can also join my normal membership if you want my specialized training.
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All right, thank you for listening to this episode and I'll talk to you on the next episode of Listening Time.
