What is Inflation?

Inflation is a measure for how much more expensive a set of goods and services have become over a certain period of time. It refers to the decline in purchasing power of a given currency. This means that for the same amount of money, you will be able to afford less things than you could in previous times.

What is Recession?

A recession is a significant decline in economic activity that can last months or years. A recession is usually signaled by a decline in GDP and other economic activity such as consumption, investment, government spending etc. It is also a period during which people lose jobs, companies make fewer sales and productivity declines. There are many reasons why a recession might occur such as sudden economic shock (such as the COVID-19 pandemic), excessive debt, bubbles (such as the housing bubble), too much inflation or deflation, technological change etc.

What happens during inflation?

Inflation impacts the economy in many ways mainly by eroding the purchasing power of consumers. By reducing purchasing power, it can encourage spending and investing because cash will only use value in the future, so consumers are incentivized to spend and invest now. However, this pattern can cause more inflation because as people spend more, there is no where for the money to go and increasingly 'worthless' money keeps accumulating in the economy, further reducing the value of cash. A serious inflation influences the quality of everyone's life, especially graduate students with no scholarship, no jobs and low numbers in the bank accounts. Now imagine the department announces a raise of tuition rate by 5% for this academic year and maybe another 5% for the next academic year, half of one’s confidence of getting the degree before he or she can still afford tuition is destroyed. Then suddenly the landlord also tells that the rent will be raised next year, which destroys the other half. Why do we want to talk about inflation? Because when it is out of control, it makes life tough! Maybe we should find out what is going on and what the cause is. By understanding this, we may develop a good strategy to against inflation.

How is inflation measured?

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. The percentage change of this index is used by most of the officials to represent the inflation rate.
Reference: U.S Bureau of Labor Statistics, link: CPI Home : U.S. Bureau of Labor Statistics (bls.gov)