Significant Economic Issue—Inflation

Before gold and silver were brought to Europe from the Spanish and Portuguese colonies in Latin America during the sixteenth century, inflation had not been a major problem. Since that time, however, inflation has been a significant economic issue, especially during and after wars.

Currently, in many countries of the world, people are facing problems caused by inflation, which is a decrease in the purchasing power of money because of continuous rises in the prices of available goods. There are two different kinds of inflation, each of which can affect people's lives. When inflation is discussed, people generally refer to an increase in prices, wages, and the amount of money circulation in a country's economy. The most common type of inflation is called creeping inflation because there is a steady but manageable increase in the rate of inflation within a year. Prices rise continuously, so that workers ask for higher wages to cover the increasing costs of housing, food, and transportation. Although such wages increases are inflationary, they are often unavoidable. As a result, a government may have to impose price and wage controls in order to control this type of inflation.

A less common type of inflation is called hyperinflation, which is usually due to war or occupation by a foreign country. During a period of hyperinflation, price levels double rapidly. Because there is too much money available in the economy, the currency decreases in value, and people lose confidence in their government's financial competence. To win back the trust of the people, the government may create a new currency.

Regardless of the type of inflation that a country's economy is experiencing, inflation affects every individual in that society. In the United States, for example, many families could no longer afford to buy at today's prices the homes that they bought years ago. As long as the costs of food and entertainment continue to rise, people will he forced to modify their lifestyles. People on fixed incomes such as pensions or scholarships have such serious financial problems that they cannot live decently, since their incomes do not keep up with the rate of inflation.

Until there is cooperation not only among individuals within any given country but also among the various governments of the world, inflation will not continue to trouble many of us.