Inflation is an insidious destroyer of stored wealth, and it’s unfortunate most people in the United States no longer understand that. Even people who lived through the late 1960s through early 1982 have forgotten how dangerous inflation can be.
Inflation is the overall rise in prices in an economy. Some inflation is specific to only one product. A late freeze in Florida can increase the price of orange juice by killing many oranges. Some of the inflation of the 1970s was caused by the Organization of Petroleum Exporting Countries (OPEC) raising the price of oil. Because most products requires transportation, the rise in price of energy contributed toward raising the prices of many products in the world.
General inflation is caused by a simple increase in the supply of money. When everybody has more dollars to spend, prices naturally go up. This is often blamed on government spending policies.
In the United States, the Bureau of Labor Statistics tracks the prices of many products and services, and analyzes them all to calculate the Consumer Price Index (CPI), which is the government’s official statistic of inflation.
The CPI is important because the government uses it to give people raises based on the CPI. Government employees, government retirees, Social Security recipients, veterans and others all receive raises each year in January based on the CPI. Many private companies and unions also use the CPI to determine their annual pensions.
Inflation reduces everybody’s spending power, and nobody likes that. Therefore, when inflation goes up, workers put pressure on employers to raise their salaries. Some groups lobby Congress to raise the minimum wage. However, it’s a vicious cycle. When businesses must pay employees higher wages, they transfer their higher expenses to customers by raising prices, which makes inflation go up.
Inflation greatly harms retirees living on their savings.
Mainstream economists and the Federal Reserve generally want to see an inflation rate of 2%. They believe that allows for optimum economic growth without harming people. In the recent years the inflation rate has actually been below that, but the Fed has been pumping more money into the economy to raise it.
US Money Reserve helps people manage their spending power during inflationary times by giving them to opportunity to use gold and silver, two traditional hedges that protect against inflation.
As Philip N. Diehl, President of US Money Reserve says, “Gold is wealth insurance.”