Why does the price of the product once increases never decrease?

A product you bought ten years ago costs more today. We all know inflation causes price increases.

Why does drop in inflation not decrease the price?
Answer: Inflation is compounding.

US Inflation graph calculator: https://smartasset.com/investing/inflation-calculator

Yes. If the price of a product is $100 and inflation is at 4% at the beginning of, say, 2020, this is how the price grows each year.

End of Year Rate Price
2020 ..% $100
2021 5% $105
2022 5% $110.25
2023 4% $114.66
2024 3% $118.10
2025 2% $120.5

So, as illustrated in the table, 2021 inflation increased to 5%; it stayed the same in 2022 and started to drop 1% every year, hitting the Fed’s dream target of 2%. Now, the exact product would cost $120.50.

Invest in assets that give you little over the inflation rate to maintain the same purchasing power. The more, the merrier, but you should aim to achieve a little over the inflation rate.

So, if anyone says inflation is dropping, keep in mind that the rate at which the price of a product grows is slower than before; it does not undo the growth.

Can the price go down?


What is required to reverse the price?

Deflation is having a negative inflation rate. During the great depression, many countries faced this.

inflation and disinflation diagram credit: https://www.dineshbakshi.com

Recently, in 2021, Japan had a brief disinflation period.

Japan Disflation period

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