Recently I’ve come across a few articles discussing the effects of inflation on the global economy. Many countries are facing rapidly rising prices: Canada, Philippines, Thailand, China, India, Turkey, Israel, South Africa, Russia, Holland, Iceland, Argentina, Venezuela, the United States, and many more.

“Double-digit price rises are about to afflict two-thirds of the world's population... So it is worrying that global monetary policy is now at its loosest since the 1970s: the average world real interest rate is negative…”

“As the Fed has cut interest rates, emerging economies that link their currencies to the dollar have been forced to run a looser monetary policy, even though their economies are overheating… This stokes inflationary pressures in America and Europe and makes life difficult for rich-country central banks.”

The above means that we should be expecting interest rates to rise sooner rather than later. This will hopefully curb inflation, but unfortunately it will deepen and accelerate a global recession.

So why is inflation a problem?

To answer this question, let’s view the following short video (9:17) by Dr. Albert A. Bartlett and apply the exponential growth function to the lowest possible double-digit inflation rate of 10%, the best case scenario that we face based on current predictions.

Part 2 | Part 3 | Part 4 | Part 5 | Part 6 | Part 7 | Part 8

The formula presented in the video to estimate the doubling period for steady growth, may it be increases in consumer prices or population growth, is:

The above calculation means that if the predicted double digit inflation rate is realized, on average, goods and services will cost twice as much 7 years from now than they do today. This should be a frightening perspective to everyone, especially considering that the odds of your income doubling in the next 7 years, to compensate for inflation, is almost zero.

Keep in mind that inflationary pressures will also force interest rates to rise, requiring the average person to maintain their life style with much less.

And if you think that this is just fiction, a worst case scenario that will never be realized, remember that the US dollar has been devalued by approximately 50% in the last 6 years, which means that in global markets, prices based in US dollars relative to the euro have already doubled since 2002.

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September 1, 2008 By chycho "Prices to double in the next 7 years based on the predicted rate of inflation" http://www.chycho.com/?q=inflation