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Why is everything getting more expensive?

Several 100 Euro bills are dissolving into fine particles. Held by a hand in front of a neutral background with copy space.
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We spend money on something or other nearly every day. And most people have a feeling that everything is getting more expensive all the time. Well, it’s true – sort of. It is called inflation.
Why do I get less and less for the same amount of money?
Supply and demand determine how much something costs. If more money enters into circulation – for example, as a result of cheap credit – demand for goods rises because people have more money to buy them. If the supply of products and services does not expand at the same rate, people cannot buy more even though there is more money in the system. As a result, prices rise.As a result, price rise. With everything getting more expensive, you get less and less for the same amount of money. Every single euro loses some of its value. That means that purchasing power is declining. Every month, the national statistics bureau Statistik Austria puts together an average mix of consumer goods in a “market basket” and calculates how much prices have gone up on average. For example, if the price tag on the goods in the market basket is 2.8 per cent higher than twelve months ago, the inflation rate is 2.8 per cent.

And then there’s “perceived inflation”

Inflation rates have been low in Europe for many years. The continent has enjoyed “price stability”. Even so, many people have a feeling that inflation is quite substantial. Their feeling does not deceive them: there is also something called “perceived inflation”. The prices of goods we need nearly every day – food, for example – go up faster than those for TV sets or cars. But because we don’t buy cars and TV sets very often, we do not consider them when we think about inflation.

Is Inflation always bad?

A high inflation rate – above five per cent – is dangerous, as this means that money loses value very quickly. We can afford less, and people lose trust in their currency. When inflation is running high, planning long-term investments is difficult for companies because it is hard to obtain loans and to calculate future profit margins reliably. But inflation does not make everyone a loser. Debtors benefit from it because the value of their debt goes down. And the relative value of tangible investments, such as real property, goes up. Modest inflation rates can even have a stimulating effect on the economy: When people feel that their money is losing value anyway, they prefer to spend it on investments or on consumer goods.

FAQ

Inflation means that the prices of goods and services rise and you can afford less with the same amount of money. This happens, for example, when there is more money in circulation but the supply of products does not grow at the same rate. As a result, every euro loses purchasing power.
Actual inflation is calculated using an average basket of goods published monthly by Statistics Austria. Perceived inflation, on the other hand, describes the personal feeling that everything is becoming more expensive – especially for everyday items such as food, which we buy regularly and whose price increases we are more aware of.
Not necessarily. Slight inflation can even be positive for the economy because it stimulates consumption. High inflation becomes problematic when money quickly loses value, purchasing power falls and companies and households can no longer plan their spending well. In such cases, confidence in the currency also suffers.
People with debts can benefit from inflation because their debts fall in relation to the value of money. Tangible assets such as real estate also often increase in value with inflation. For savers, on the other hand, inflation is disadvantageous because their savings lose purchasing power.

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