Understanding Inflation and Deflation: How They Affect Your Finances and the Economy

Keeping dear money under the mattress – our grandparents already believed in that. However, hoarding your finances in the bedroom can become a problem.

Especially when the value of our money changes. After all, the world economy is shaky and subject to fluctuations. These changes affect our money. Or rather, its value.

When markets and finances go haywire, inflation is possible. Simply put, inflation is the overall increase in the price of goods and services.

So not only the price of a certain product increases, but for all goods. When inflation occurs, the domestic currency loses value.

Let’s continue with the thought game: What happens to the money left under the mattress over a certain period of time? If the money loses value, not much is left of the savings.

According to economists, there are only two reasons for inflation: too much money in circulation and wrong expectations. In other words, if we spend money because we expect money to depreciate, we fuel inflation.

But the opposite is also possible: deflation. Deflation means the value of money increases. It doesn’t sound like a problem at first.

But as currency values ​​rise, the prices of goods and services fall. This can become a real problem, especially in the long term.

If the prices keep falling, the demand also falls. If consumption changes, this can have fatal consequences for a country’s finances and economy.