Episode 2: The Shadow Undermining Your Salary, The Secret of Inflation 😈

Hello! Welcome to the second episode of A Thousand Economic Tales. Have you noticed that a loaf of bread, which cost you $3 a few years ago, now costs $5? When your salary stays the same, but prices seem to soar, this phenomenon is called inflation. Today, we will deeply explore the hidden causes of inflation and strategies to protect your money from six different perspectives.

The first view, which prioritizes market efficiency, identifies the main cause of inflation as an increase in the money supply. When the amount of money circulating in the market grows, its value naturally falls, and prices rise. This is summarized by the quote from economist Milton Friedman: "Inflation is always and everywhere a monetary phenomenon."

For example, when the central bank lowers interest rates and releases money easily, this money flows into asset markets, causing a general rise in prices. From this perspective, the central bank's proper control of the money supply is key to price stability.

The second view, which prioritizes fairness, does not see inflation merely as a money supply issue. It argues that prices rise due to structural problems within the social and economic system itself.

This perspective focuses on external shocks like global supply chain disruptions or surges in raw material prices. For instance, even if there isn't much money in circulation, domestic prices can still rise if international oil prices increase or if factories in specific countries halt operations.

Furthermore, there is the 'Greedflation' debate, where some monopolistic companies raise product prices far exceeding the increase in raw material costs. A key concern is that inflation leads to a decrease in purchasing power for low-income groups, deepening wealth inequality.

How should we respond when the value of money is falling due to inflation?

First is the Investor's Strategy. During inflation, the value of cash declines. Therefore, instead of holding cash, it is crucial to invest in real assets that can generate returns higher than the inflation rate. You should pay attention to assets that are linked to inflation and tend to appreciate in value, such as stocks, real estate, and commodities.

Second is the Consumer's Strategy. You might consider 'preemptive spending', buying necessary goods before prices rise further. However, consumption should be planned and focused on essentials. Additionally, habits like using energy-efficient products or taking public transport to reduce high energy costs become important.

Third is the Worker's Strategy. A salary that fails to keep up with the inflation rate is effectively a reduction in income. Therefore, it is important to demand an inflation-indexed wage increase from your organization or to seek a job transition to a sector less affected by inflation.

Fourth is the Entrepreneur's Strategy. To proactively counter inflation, businesses should develop strategies to secure raw materials early or reduce production costs by building efficient supply chains. It is also vital to strengthen non-price competition, differentiating quality or service to prevent customer churn rather than just raising prices.

Fifth is the Citizen's Strategy. Citizens must pay attention to government discussions regarding support measures for vulnerable groups and welfare policies to prevent the lives of those without financial assets from worsening due to inflation. It is important to voice a reasonable opinion that balances the goal of price stability with the goal of protecting the livelihoods of the general public.

Sixth is the Policy Strategy. The central bank attempts to curb inflation by raising interest rates and withdrawing money from the market. Conversely, the government should implement direct price stabilization policies, such as lowering fuel taxes or reducing tariffs on agricultural products. The synchronized and timely operation of these two policy tools is essential.

Inflation is not just a phenomenon that raises the price of goods. It is a complex economic event that determines our wealth and quality of life. I hope you all use this wisdom to become financially astute economic agents.

In the next episode, Episode 3, we will cover the investment terms everyone is curious about: 'Stocks and Bonds'. We will explore the most fundamental ways to grow your money. Don't miss it!