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what is inflation

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What is inflation? It’s on everyone’s lips these days, but do we really know what that word means? Do we know why when we go to buy everything is more expensive?

If we had to summarize it in a sentence we could say that it is the general and sustained rise in prices that has the following consequences:

‚úÖ in the short term, when prices rise, we need more money to buy goods or hire services than before (loss of purchasing power)

‚úÖ and in the long term, the devaluation of the currency

This price increase will affect us more or less depending on the type of good or service. For example, the rise in electricity prices is not the same as in sugar. This affects us directly and indirectly; direct if we have to pay more in the electricity bill , and indirect since the companies need electricity to produce the goods, so consequently they will have to increase the prices of the products and we will pay more for them.

How is it calculated?

Currently, the prices of 700 products that are part of the current year’s usual consumption basket are compared with the prices of the same products the previous year.

The ideal is for the inflation rate to be less than 2%, although as we have seen, due to the different crises we are going through (health and geopolitical), there has been a sustained increase in prices. Especially on those products that come from geographical areas on which we are dependent. This has raised the rate of inflation to record highs.

inflation in Spain

In Spain, inflation is measured by the CPI (Consumer Price Index), and it is currently 8.4%, if we compare it with the maximum figure that inflation should reach (2%) we can conclude that we we find ourselves mired in a very important price inflation (the highest for 37 years).

Here you can analyze the evolution of inflation in Spain

https://www.epdata.es/embed/6de4620e-10c3-4fd8-b6d0-e235d4a427d9/450

In short, inflation is nothing more than the general and sustained rise in the prices of the products of habitual consumption of families, the percentage that should not exceed 2%.

Can you escape inflation?

The answer is yes, without a doubt. The money stored in the bank or at home in an inflation scenario is devalued. So the best way to escape it is by investing your money in long-term investments that can also generate periodic profits. We will see them in the following article about the top 10 long-term investments

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