Why is there inflation

daveza

daveza

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I've hesitated to ask for fear of complete ridicule but curiosity got the better of me.

When I was young a movie and popcorn cost 25c ( two shillings and sixpence ), bus fare was a penny and a house cost under R10,000.

Now... the petrol price goes up, so everyone that uses petrol puts their prices up, then everyone who deals with them puts their prices up etc etc.

What would have had to happen for a movie and popcorn still to cost 25c ?

Or, as I am clueless in the fiscal department... why is it inevitable that the cost of anything must keep going up.
 
This is my take on it (and I also risk ridicule by saying it :D)

The population grows which would naturally lead to a shortage of resources (money). More notes have to be printed, leading to it becoming less valuable (the more of something that there is, the less valuable it becomes). Enter inflation - by inflating prices, you have to fork out more money for the same item seeing that it is now less valuable.

I'm sure there are many other factors, but that's just how I see it. Countries with stable population sizes seem to have lower inflation rates.
 
Smooth Criminal said:
This is my take on it (and I also risk ridicule by saying it :D)

The population grows which would naturally lead to a shortage of resources (money). More notes have to be printed, leading to it becoming less valuable (the more of something that there is, the less valuable it becomes). Enter inflation - by inflating prices, you have to fork out more money for the same item seeing that it is now less valuable.

I'm sure there are many other factors, but that's just how I see it. Countries with stable population sizes seem to have lower inflation rates.
Click to expand...

Yep, that's pretty much it (or how I understand it, too)
 
daveza said:
I've hesitated to ask for fear of complete ridicule
Click to expand...
Nah. Everybody else is just as clueless.

There is a whole list of possible explanations on the wiki page. Every flavour of economist has their own explanations. All of them are probably partially right. I doubt there is one single cause.

Personaly I favour the Monetarist View. This also makes sense though.
 
Inflation is at least partially the result of a collective entitlement mentality.
 
25C for movies back in the '60s -

40 years later the same movie costs R 50 odd. Don't ask me what % increase that is but I'm sure that it didn't rise the same % between the '20s and the 60's ( even with my poor maths that would mean movies in the '20s would have cost around R0.0001c )

Can we presume that by 2050 a movie will cost a few Million ?!

What would happen ( ridicule suit on again ) if every price in the world was frozen right now ?
 
And some of us pay thousands and thousands of Rands to Universities to get Advanced degrees in Business and the economics Professors can't explain things clearly?
 
daveza said:
25C for movies back in the '60s -

40 years later the same movie costs R 50 odd. Don't ask me what % increase that is
Click to expand...

That would be a 19900% increase ;) (Given that you take a current movie ticket @ R50 though)
 
Inflation is a result of unlimited demands made on limited resources.

Put another way, if EVERYTHING was available for NOTHING, there would be no inflation.
 
IMHO, a major reason is that money is no longer backed by anything and therefore only has a virtual, baseless worth. If one could redeem a Rand for, say, a tin of beans, then its value would remain more stable. By not having any base value, it is easy for governments to borrow by creating a rediculously large deficit which it has no intention of paying off, even if it could afford to do so.
 
Think about it, it motivates you to spend. If you didn't expect goods to increase in price, why would you buy it now, instead of later? Same can be said for deflation, if goods costs less next month, why not simply wait.
 
GhostSixFour said:
Think about it, it motivates you to spend. If you didn't expect goods to increase in price, why would you buy it now, instead of later? Same can be said for deflation, if goods costs less next month, why not simply wait.
Click to expand...

That logic only works with wants, not needs. It is the media selling us stuff we don't need but think we do (wants) that causes the chaos.
That and greed.
Look at Lehman Bros that managed to wipe out $660 BILLION, all by themselves. How any organisation can accumulate that much debt based on an imaginary commodity is beyond me ( and beyond most sane people ).
To try and give some feeling of the size of this number, it is 100 billion meters to the sun. You would have to travel to the sun and back 3 times to travel 600 billion meters.

OR

If you invested that money at 1% interest per annum, you would get $6.6bn a year in interest. Ignoring compounding for now, that means you would need to spend $18million a day just to keep even, spend less and your capital grows. That is roughly $750 000 a hours - way more than JZ spends on his wives and children.
If you pick any high end vehicle manufacturer, and bought a new car every hour, they would not be able to deliver, and you would still not have spent enough to avoid the capital growing.

The only known way to spend that type of money, that quickly, is to invest it with the ANC infrastructure projects....


Edit: did this in a hurry, feel free to correct decimal point errors etc
 
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daveza said:
25C for movies back in the '60s -

40 years later the same movie costs R 50 odd. Don't ask me what % increase that is but I'm sure that it didn't rise the same % between the '20s and the 60's ( even with my poor maths that would mean movies in the '20s would have cost around R0.0001c )
Click to expand...
From 1960 where a movie cost 25c to 2010 where it costs around R50, the inflation rate would be around 11.18% per year. At the same rate of inflation it would cost around R3500 in 2050. One thing to note though is that if we do the same comparison using another currency the rate is significantly lower.

In 1960 the USD = 0.35714 UKP (in 1961 we changed from UKP to ZAR at 1:1), so we can estimate that R0.25 is approximately USD 0.70. In 2010, R50 is approximately equivalent to USD6.71.

Thus in Dollar terms, our cinema inflation rate is 4.62%... which doesn't sound so bad.
 
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