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Science | History | Citizenship | PSHE

Living standards slashed by soaring inflation

Is inflation good news or bad? Figures released yesterday show that inflation is at its highest point since 2012. It may rise further — pushing food bills up and the value of wages down. Those new one pound coins in your pocket may be shiny. But they are now worth less than they would have been a year ago. It was announced yesterday that inflation has risen ton 3%. Inflation is the rate at which prices rise. With a 3% inflation rate a coffee that costs 2 in a given year, will cost 2.06 the following year. Inflation has risen sharply since BrexitThe UK's departure from the European Union. . After the vote the value of the pound plummeted. This made imports more expensive, driving up the cost of what we buy. At the same time, wages have only risen by 2.1%, meaning that food and services have become more expensive. Liberal Democrat leader Vince Cable claimed that the inflation rate is "cutting people's living standards". But some people will benefit, particularly pensioners. Thanks to a mechanism called the triple lock, inflation will cause pensions to rise. Next year recipients will get an extra 250. And some inflation is good for economies. Gradually rising prices encourage people to buy things sooner, which keeps economies growing. The UK sets an inflation target of 2% per year. However, history is littered with examples of nations descending into chaos after losing control of inflation. Too much, and money becomes worthless. Between 1918 and 1924 hyperinflationInflation that reaches more than 50% per month. In such conditions, money quickly becomes worthless, and people simply stop using it. crippled the Weimar RepublicThe government of Germany from 1918 to 1933.  in Germany. There were periods when food prices doubled every four days. In January 1923 a loaf of bread cost 250 German Marks. But by November it cost 200,000,000,000. Banknotes lost so much value that it was cheaper to burn stacks of money than buy fuel. Then again, prices can fall as well as rise. This is called deflation. And while lower prices may sound great, they can also lead to disaster. In the 1990s Japan was ravaged by a deflationary spiral. Goods became so cheap that businesses could not make profits. Bosses sacked workers to save money. Demand for goods plummeted further. And prices fell even lower - the vicious cycle complete. With 3% inflation, the UK is not going to be struck by hyperinflation or a deflationary spiral. So is this announcement good news, or bad news? Inflation? A load of hot air. "There are clear benefits," say some. Inflation erodes the value of debt, meaning thousands of people with mortgages and loans will be better off. Rising prices also allow bosses to increase wages, which is good for workers. Rising inflation should be welcomed. "The daily grind will get harder," say others. With higher prices and lower wages, the figures prove that normal people in the UK effectively face a pay cut. How can that be good news? Also, we should not forget that inflation is still above the government's target of 2%. Failure to meet targets should not be celebrated. KeywordsBrexit - The UK's departure from the European Union.

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