MWA#3 Research Paper: Inflation

What is inflation and how is it going to affect us in the future? Inflation is “the rate of
increase in prices over a given period of time” (F&D Article). To put it into simpler terms, it is
basically the rise of prices on all consumer goods and services making the cost of living more
expensive recorded typically annually.

Inflation is measured through what is called the Consumer Price Index (CPI). “ There are
many ways of measuring inflation, but one of the most common measures is the Consumer
Price Index for Urban Consumers (CPI-U), which is produced by the Bureau of Labor
Statistics.” (USA) The CPI provides a visual of the changes in prices paid by consumers. This is
based upon the most commonly purchased goods and services. We Americans get surveyed
on what we prefer and do spend the most of our money on and the four main categories
covered are food, energy, commodities, and services such as mortgages, rent, and healthcare.
“Services are typically the highest relative importance, followed by commodities, food, and
energy.” (USA). The CPI measures the percent change in the prices, therefore determining the
rate of inflation.

According to Investopedia, there are three types of causes of inflation. The first listed is
demand-pull inflation. “Demand-pull inflation is the upward pressure on prices that follows a
shortage in supply, a condition that economists describe as ‘too many dollars chasing too few
goods.’” (Investopedia) .To simplify it is basically where supply is not meeting demand, causing
prices to increase. “For example, in the early 1970s, economic growth and rising oil prices
caused a spike in US inflation of 12% by 1974.” The second is cost-push inflation. “Cost push
inflation (also known as wage-push inflation) occurs when overall prices increase due to
increases in the cost of wages and raw materials.” (Investopedia) The shortened answer is
when the cost of production increases and in order to make a profit the businesses have to
raise their prices on consumers. “The most common example of cost push inflation occurs in
the energy sector- oil and natural gas prices.” (Nasdaq) Lastly, we have built-in inflation. This
occurs when workers are demanding higher pay and in order to fulfill their needs, the
businesses raise their products or services prices. “Built in inflation can be viewed as a double
edged sword. As laborers demand higher pay, the costs of production increases, which can
raise the cost of living.” (Mint Life)

Now that we understand what inflation is, how it is measured, and what some of its
causes are, let’s discuss how it affects consumers. The main negative effect of inflation is that
“unevenly rising prices inevitably reduce the purchasing power of some consumers, and this
erosion of real income is the single biggest cost of inflation.” This means that the amount of
money we have doesn’t allow us to purchase as much as before. Our money is basically
worthless. “Rising prices may be an indication of an economy growing very fast. People buy
more than they need to avoid tomorrows higher prices fuels demand for goods and
services.” (The Balance) Some more unfortunate effects due to inflation are depreciated value
of pensions, savings, and treasury notes. That means that all of the hard earned money that
you saved for the better and your dedicated time spent working in a certain job position in
order to obtain a pension just slowly goes down the drain. And lastly when inflation increases,
so do interest rates. It is a big loss because for example while the value of your house is
dropping, the price you pay for necessities such as food and gas is increasing. “That’s what
happened in the financial crisis of 2008. Home prices deflated, falling nearly 20%. Meanwhile,
inflation occurred in oil prices. They reached an all-time high of $128 a barrel in July
2008.” (The Balance) Believe it or not but economy inflation could be beneficial when not too
high. A good inflation rate causes consumers to purchase before prices get too hectic.

In order to get a better understanding, here are some prime examples of inflation in the
United States. According to Master Class Articles, in 1913 a gallon of milk cost 36 cents. In
2013, a gallon of milk cost $3.53. This just shows how the value of money has decreased.
Another example is the price of a cup of coffee, in 1980 a cup of coffee cost $3.14 and in 2020
it cost $4.43. That is a 41.1% increase in inflation. CNBC has statistics of more inflation rates
including gasoline which increased 38% from February 2021 to February 2022.

In conclusion, inflation is going negatively affect us but it doesn’t have to hit you so as
hard as long as you take steps today in order to prepare for it. How can we prepare for
inflation? “For example, if you have an asset that increases in value by 3% each year, but
inflation is 4%, the real return is -1%” According to The Balance, we can hedge against
inflation. What this means is we can take action in order to protect the value of our investments
from the effects of inflation. “One option is to purchase assets whose value tends to be tied to
inflation. If inflation rises, their values will rise in tandem.” A prime example of that would be
gold, as inflation rises so does the price of gold. Another hedge would be to invest in specific
securities that counter inflation. “For example, some bonds will pay an interest rate partially
based on the rate of inflation.“ People that have saved for retirement should plan on saving
more than they currently think they’ll need. “To be prepared for inflation during your retirement,
save more than you think you will need. It's also important to begin saving as soon as possible
in order to benefit as much as you can from compounding interest.” The best advice to get
prepared for the effects of inflation is to get financially educated and invest your time and
money wisely, and that is up to each individual to determine for oneself.

Reflection

The purpose of the project I created was to identify inflation and how it interacts in our society and with
our future. I have achieved this purpose by researching, defining, and explaining these concepts. My
intended audience is anyone who is looking to be financially stable in the future. This impacted my
medium by the need for this research to be appealing and attractive so that the audience reads all the
way through. I believe this was a great medium because it is informative with citations and examples.
This project was not very complicated, it just consisted of doing research and proper citations and
organizing it all in a manner that flows well. The other projects prepared me for using different mediums,
analyzing and interpreting the information in a good fashion. In the other projects, we practiced
projecting info to different audiences, practice using images to make the project multimodal, and pulling
in-text citations as evidence in order to better argue my point. The rhetorical decision made when
composing this paper was to find a lot of research. Facts and evidence was the main source of arguing
this purpose. I think the challenge faced in this project was the works cited page. It was a bit challenging
putting together all of the information to my citations because some of them didn’t clearly state the
authors. I used the Purdue owl MLA citations page in order to help me overcome. I did not use another
prewriting process, I used the same process which was research, analyze, interpret, and organize. I
wasn’t sure 100% if I referred to my in-text citations correctly. But besides from that I learned a lot
myself after researching this project and enjoyed it.

Works Cited

• What is inflation and how is it measured? .USA. Nov 2021. https://usafacts.org/articles/what-

is-inflation-and-how-is-it-measured/?
utm_source=google&utm_medium=cpc&utm_campaign=ND-
Economy&gclid=EAIaIQobChMI5_Gh8_yO9wIVkhx9Ch18DwZDEAAYASAAEgI0zPD_BwE .
Accessed 12 Apr 2022

• Oner, Ceyda . Inflation: Prices on the Rise. F&D Article. https://www.imf.org/external/pubs/ft/

fandd/basics/30-
inflation.htm#:~:text=Inflation%20is%20the%20rate%20of,of%20living%20in%20a%20coun
try .Accessed 12 Apr 2022

• Floyd, David. 9 Common Effects of Inflation. Investopedia. Feb 8, 2022. https://

www.investopedia.com/articles/insights/122016/9-common-effects-inflation.asp .Accessed
15 Apr 2022

• Amadeo, Kimberly. How Inflation Impacts Your Life. The Balance, Dec 31, 2021. https://
www.thebalance.com/inflation-impact-on-economy-3306102#toc-inflations-winners-and-
losers .Accessed 15 Apr 2022

• Arends, Brett. Look Out— the inflation forecast is now flashing red. MarketWatch. Mar 10,
2022.https://www.marketwatch.com/story/uh-oh-this-inflation-forecast-is-now-flashing-
red-11646923258#:~:text=The%20bond%20market%20is%20now,seen%20from%202010
%20to%202020 .Accessed 15 Apr 2022

• Coffee Prices Adjusted for Inflation: US Inflation Calculator. US Inflation Calculator. April 12,
2022. https://www.usinflationcalculator.com/inflation/coffee-prices-by-year-and-adjust-for-
inflation/
#:~:text=Coffee%20Prices%20and%20Overall%20Inflation&text=For%20example%2C%20t
aking%20the%20pricing,41.1%25%20increase%20in%2040%20years .Accessed 15 Apr
2022

• Inflation Defined (What is the Inflation Rate). Intuit Mint Life. August 24, 2020. https://
mint.intuit.com/blog/planning/inflation/
#:~:text=Built%2Din%20inflation%20occurs%20when,raise%20the%20cost%20of%20livin .
Accessed 29 Apr 2022

• Hyerczyk, James. Cost-Push and Demand-Pull Inflation: Definitions and Examples. Nasdaq.
June 29, 2021. https://www.nasdaq.com/articles/cost-push-and-demand-pull-inflation%3A-
definitions-and-examples-2021-06-29 .Accessed 29 Apr 2022