Inflation, do you really understand it? 🔥

Question

My brother makes millions every year relying on this indicator! No exaggeration! 🚀

It is 2025. Inflation is still at the core of the Federal Reserve's decisions. Interest rate hikes and cuts are pulling the stock market and the cryptocurrency world along.

What is inflation? Simply put: there is more money, things are more expensive, and the cash in your pocket is becoming less and less valuable. 💸

It feels like money is "shrinking." I can't buy as many things as I used to.

01. Why is there inflation?

■ Too many money prints 📈

Imagine this: a small island, 10 golden apples, 100 bucks, each selling for 10 bucks. Suddenly got an extra 100 dollars! The apples are still the same. Result? It's 20 bucks each.

Back in 2008, the United States was printing money like crazy to save the market. In recent years, the world has been pouring money into pandemic prevention. The flooding of cash in the market has driven up the prices of everything.

■ Things have decreased 📉

Sometimes the money doesn't change, but if the items decrease, the prices will also rise!

In 2022, the Russia-Ukraine conflict broke out, leading to a shortage of natural gas in Europe and soaring heating costs. During the pandemic, the supply chain was in chaos, and goods could not be transported. With fewer items available, prices naturally increased.

■ Costs have risen 💰

Wages have increased, materials have become more expensive, and logistics costs have risen. Can manufacturers avoid raising prices? In the end, it all gets passed on to consumers.

02, Why does the Federal Reserve want to raise interest rates?

In 2021, the inflation rate in the United States soared to a 40-year high! CPI broke 9%! Terrifying.

How does raising interest rates suppress inflation? It's simple:

■ Borrowing money has become expensive, and everyone is afraid to borrow now 🏦

■ With less money in the market, fewer people are buying things, and prices have stabilized.

But raising interest rates also carries risks. In 2023, Silicon Valley Bank collapsed like this. The bonds held by the bank plummeted due to interest rate hikes, and in the end, they couldn't hold on. Raise it too aggressively, and the system crashes.

03. How many types of inflation are there?

1. Mild Inflation 🌱

Rising 2%-3% each year is acceptable. In fact, economists say that anything below 2.5% doesn't really count as inflation; it's "unnoticed inflation."

A little inflation is actually good? Yes! Mild inflation stimulates the economy. Prices go up a bit, manufacturers make money, and are more inclined to invest. 1%-5% inflation acts like "lubricant" for the economy.

2. Turbo Inflation 🏇

Double-digit inflation rate, unstable and worsening rapidly. People are anxious. Dangerous!

3. Hyperinflation 💣

Triple-digit inflation is completely out of control. Prices are skyrocketing every day, and money is worthless.

Financial collapse, social chaos. There have been three instances in history: Germany in 1923, Hungary in 1946, and China from 1937 to 1949.

That was terrifying in China. In February 1948, 300 k francs for a担 of rice, and by June it was 1,000 k! It increased more than three times in four months!

Inflation can also be divided as follows:

1. Concealed Inflation 🥷

The government controls prices, keeping them down. Once they let go, it will explode.

2. Demand-Pull Type 🧲

When everyone wants to buy, things become expensive. Isn't that how holiday flight tickets are?

3. Cost Advancement Type 🔄

Production costs have risen, so prices can only increase. Chicken has become expensive, and chicken burgers are following suit. Oil prices are high, and the pressure is felt globally.

4. Structural Inflation 🏗️

Some products are particularly popular and have increased in price individually.

In summary:

Good: Moderate type, Demand-driven type ✅
A bit dangerous: concealed type, structural type ⚠️
Very Dangerous: Cost-Push Type, Galloping Type ⛔
Catastrophic: Malicious Inflation ☠️

04. The Impact of Inflation on Us

■ Rising cost of living, the poor get poorer 📊

Rent is rising, food prices are rising, everything is rising! Wages are not keeping up, and life is difficult.

■ Saving money is equivalent to losing money 💸

Inflation is 5%, but the deposit interest rate is only 2%, money is shrinking! No wonder everyone prefers to buy houses, stocks, and gold.

■ Most afraid of stagflation: weak economy + high inflation 🌋

In the 1970s, the United States was like this, with a stagnant economy, high unemployment, severe inflation, and social unrest.

Want to grasp inflation trends? Pay attention to the CPI index and the PPI index. If the CPI rises quickly, it indicates that the things we buy have become more expensive; if the PPI rises quickly, it indicates that production costs are high, and prices may rise in the future. 🔍

Mastering these will make your investment decisions smarter! 🚀