what causes inflation – the prices of things to go up ..

you might have seen the inflation effects – the prices of things slowly going up year over year

  • for instance , bread today costs 40 inr per loaf , the previous year it was 35 inr per loaf (20 – 30 slices of bread)
  • the roadside pani puri vendor increases costs from inr 20 to inr 25
  • the price would vary from city to city – smaller cities would have lesser prices than larger cities
  • the price in kolkata ( where pani puri is called puchka , by the way ) is around 10 – 15 inr as of writing this ( aug 7 2020 )

so the question is – what causes inflation ?

the answer is : the diminishing strength of the local currency

  • prices of things go up
  • stock market indices go up , shares of good companies appreciate
  • the real buying power of the local currency comes down
  • the stock market appreciation ( indices going up ) is an illusion – your money is being eroded

but this does not mean that you should not invest in the stock market

on the contrary , stock market returns exceed the inflation rates over a long term .

historically , stock market has been the best creator of wealth .

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