What is Inflation?

Guía de Introducción: ¿Qué causa inflación?

In economics, inflation is a measure of rising prices of goods and services in an economy, which often leads to a decline in the purchasing power of the economy's local currency.

Put simply, inflation means that the same unit of currency used to purchase a basket of items today will only be able to purchase fewer items over time due to rising prices.

Check out the table below to see how prices for certain items have changed between 1960 and 2021 in the United States:

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Prices for certain items between 1960 and 2021 in the United States

A popular metric to measure inflation is the Consumer Price Index (CPI), which is calculated by the Bureau of Labor Statistics (BLS) and examines the weighted average of various price baskets of goods and services used by specific groups of households for daily living. These baskets include food, shelter, transportation, doctors’ and dentists’ services or drugs, and are categorized differently for people living in rural or urban settings.

It is worth noting that the CPI can be a controversial index, as the exact methodology and data used to calculate CPI is not publicly available. Further, many believe that this methodology does not accurately measure inflation across the country and economy, as epitomized by the ever increasing cost of housing, healthcare, and education. Adding to this, the method for calculating CPI has also undergone more than 20 changes over the past several decades, adding to the narrative that it is not an accurate measure of inflation.

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Causes of Inflation:

Efecto de atracción de la demanda

La inflación de atracción de la demanda se produce cuando la demanda de los consumidores de bienes supera la oferta disponible, lo que eleva los precios de dicha oferta.

Este efecto tiende a ocurrir cuando hay un aumento en la oferta de dinero y crédito disponible para los consumidores, a menudo como resultado del aumento del empleo en una economía o de un gobierno que gasta dinero más libremente.

Efecto de aumento de costos

El efecto de aumento de costos se produce cuando el precio de los bienes aumenta como resultado de los costos de producción, que incluyen las materias primas y los salarios de los empleados.

Para que los precios aumenten, la demanda del producto debe permanecer constante ya que el costo de producción de dicho producto sigue aumentando.

Inflación incorporada (o inflación de empuje salarial)

La inflación incorporada ocurre con la idea de que las personas esperan que las tasas de inflación continúen, particularmente con el objetivo de la Reserva Federal de mantener una tasa de inflación del 2 % por año.

Con esta expectativa en mente, hay un aumento en los salarios en todas las industrias, lo que aumenta las tasas de consumo, elevando aún más los precios de los bienes y servicios.

How Does Bitcoin Help?

While inflation is generally considered to be a positive attribute of a healthy economy, it is often unwise for people to hold their savings in cash due to cash losing purchasing power over time.

This has a lot of market participants turning their hard earned cash into stores of value like bitcoin, perceived as such thanks to its scarcity, transferability and durability.

You can learn more about Bitcoin as a hedge against inflation here

Useful Inflation Resources

If you would like to learn more about what makes Bitcoin a good store of value, head over to our “What is Bitcoin?” and our “Store of Value” pages located in our Learn Center for a deeper dive. 

If you are interested in learning more about other cryptocurrencies, you can also visit Kraken’s crypto guides page and check our cryptocurrency prices.

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