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.
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?
Yes.
What is required to reverse the price?
Deflation
Deflation is having a negative inflation rate. During the great depression, many countries faced this.
credit: https://www.dineshbakshi.com
Recently, in 2021, Japan had a brief disinflation period.
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