Many people don’t understand what inflation is. They think it’s when things become more expensive. But what you need to understand is that inflation when your currency becomes less valuable.

Think of it this way:
A can of peaches is worth… a can of peaches. Always. Whether is costs $1 or $2 it’s still worth a can of peaches. So if peaches cost $1, that means your dollar is worth a can of peaches, but if a can of peaches costs $2, then your dollar is only worth half a can of peaches. The value of the peaches went up in relation to the value of a dollar, but it’s still worth a can of peaches.

The market sets prices based on supply and demand. But not just supply or demand. Just because there is a low supply doesn’t make an item expensive, or vice-versa. If there is little supply but also no demand, an item can still be very cheap. The same is true for an item in high demand for which there is a great supply.

Currency is not exempt from this. Once out huge supply of cash is no longer in demand, the value (price) will decrease, and it’s buying power will be diminished, and thus, prices will “increase”.

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