Question

How do you view inflation with reference to its impact on individuals’ assets? Do you know what’s the most commonly used inflation index?

（please more detail，thanks！）

Answer 1

INFLATION can be defined as the increase in prices and fall in the purchase value of money.

Inflation doesn't affect all the sectors in the same way. Let's discuss few cases.

Erodes Purchasing Power of the economy as a whole. Almost all prices rise high and the value of money decreases as a whole.

Causes More Inflation: Unfortunately, the urge to spend and invest in the face of inflation tends to boost inflation in turn, creating a potentially catastrophic feedback loop.

Sometimes inflation is good for the economy. As prices rise a bit, people tend to invest more in the hope that prices will continue rising and they will get a better return on investment. Consumer price spending drives economic growth.

Inflation is bad if you are planning your retirement. As the prices will continue to rise, the purchase value of your savings are going to be lower and lower. This is and adverse effect of Inflation on people.

When inflation reaches to double digits - 10 percent or higher, it is called hyperinflation. It occurs when the government essentially prints money without regard to the inflation rate.

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The CPI or the Consumer Price Index is the most commonly used Inflation Index.

An Inflation Index is an economic tool that is used to measure the Inflation in an economy.
Index is termed for a set of data which is relevant for future reference
Consumer Price Index (CPI): This inflation index measures the change in prices regular consumers pay to live their day-to-day lives.
The CPI calculation includes the following categories of goods and service:
1. Food and beverages,
2. Housing,
3. Apparel,
4. Transporting,
5. Medical care,
6. Recreation and Entertainment,
7. Education and Communication,
8. Miscellaneous goods and services.

You might be wondering how the government takes the data for the calculation of CPI!
Numerous Government employees visit thousands of stores, restaurants, entertainment places, etc. to figure out all the data very month. They sample approximately 80,000 items per month, which is used as the raw data to perform the Consumer Price Index calculations.