Each of us, for once, saw on tv material in which customers at the marketplace complain about rising prices and the sellers inform that it will “be more expensive”. In the background of specified a scene, there is simply a common but erroneous belief that a 100 zł banknote is simply a constant unit of value – something as certain as a metre or a kilo. However, it is only a promise that becomes increasingly hard to keep all day.
Inflation is neither a fresh phenomenon nor a temporary malfunction of the system. It is simply a permanent component of the economical game – both between the client and the seller and between countries in the global arena. In the simplest sense, inflation means rising prices, so for the same amount we buy little and less. In practice, it seems that regular buying costs almost unnoticed, and despite rising earnings, our standard of surviving does not increase proportionally to pay.
How does the current empty money strategy work?
On August 15, 1971, the economical planet experienced a shock that started a strategy of fiduciary money (based on fiat money). U.S. president Richard Nixon yet suspended the dollar exchange for gold. The current strategy is based on assurance in the central bank as the currency is no longer covered by hard assets. The central bank is the most crucial financial institution in the country liable for money creation, state banking and economical stability.
Central banks have gained more flexibility in monetary policy, but the price for this is higher inflation in the long term. With this procedure, central banks can print money and manage interest rates to fight the recession, which was impossible with a rigid parity. The absence of restrictions resulting from the amount of gold has facilitated government debt and led to sustained inflation, resulting in an increase in prices of, for example, aggregates that have become an investment asset. If individual wants to realize the principles on which the current strategy works and how the fresh currency goes to trading, I encourage you to watch this film: ]]>What's the overprint?]]>
Important moments for the current money laundering strategy were 2008 and 2020. The financial crisis in the United States in 2008 led to a crucial currency printing to save the economy and the banking sector. 1 of its causes was the excessive tendency of financial institutions to lend to low creditworthiness entities. erstwhile the situation got out of hand, the central bank provided liquidity to the financial system, preventing the domino and bankruptcy of many institutions.
2008 became a symbol of the departure from erstwhile restrictions on monetary policy – the scale of the money creation remained advanced besides in subsequent years.
In 2020, mass overprint was intended to mitigate the economical impact of the C19 pandemic. The scale of the money creation surpassed the 1 from 2008. On the attached illustration we see a crucial increase in the monetary base (cash + reserves of commercial banks), which presents the scale of creation in these key years. The effects of mass overprint are paid by average people whose inflation consumes savings and leads to a decline in purchasing power in regular purchases.
How is inflation calculated?
In economical practice, we usage the authoritative measurement of inflation, although in reality it is different for everyone. Otherwise, the price increase is felt by the client on the marketplace purchases, or the owner of the company. To harmonise the measure, the Central Statistical Office (GUS) creates an inflation basket consisting of various products and services. It then compares their prices over time, creating an average price change in the economy.
The Consumer Price Index (CPI) depends in the main part (approximately 26%) on food and non-alcoholic beverages prices, the cost of utilizing the flat or home (approximately 20%) and transport (approximately 10%). specified proportions consequence from the fact that they are statistically the largest expenditures of the Polish household per year. A detailed list of the scales utilized for calculating the CPI is given in the following diagram.
Source: Own development
Although CPI is simply a useful tool to compare price changes across the economy, it should be remembered that this is only a statistical average that does not full reflect individual consumer experience. Each of us has its own “inflation basket”, depending on lifestyle, age, place of residence or expenditure structure. Therefore, real inflation, which we feel in the wallet, can be much higher or lower than this authoritative 1 – and it is this difference that makes any people talk about "cost", and others say that "nothing has increased so much".
Real inflation vs. authoritative measurement of inflation (CPI)
Sensible price increases are frequently higher than authoritative data. This is mainly due to respective factors:
Continuity of inflation
The same rule that we know from the compound percent works here – inflation is simply a continuous process, and prices have been rising all year since the always higher "base". This means that even at constant inflation rates, nominal increases are increasing.
Example: say buying cart costs PLN 100 and inflation is 10% per year for 3 years.
The price of the basket in the following years looks like this:
Year 0: PLN 100
Year 1: PLN 110
Year 2: PLN 121
Year 3: PLN 133.10
So we see that, despite the same rate of inflation, the price is rising more rapidly. After 10 years specified a basket would cost more than 2.5 times more than at the beginning – although inflation is “only” 10% per year. This is the strength of the compound percentage, which in the long word can dramatically lower the real value of money.
"Depleting inflation"
Language catch frequently utilized by politicians and commentators in the media. It suggests that falling inflation is tantamount to falling prices. Falling inflation is only a decrease in the index, not a real fall in prices (prices are rising but slower).
It is worth noting the long-term perspective. In economical life there are periods of rising and falling inflation. However, from the consumer's point of view, this is simply a continuous decrease in the value of money.
CPI index in Poland from 2000 to 2025 (in %, rdr), source: NBP
The graph shows the authoritative rate of inflation in Poland. Apart from the period 2014-2016 (deflation – price drop), prices are constantly rising despite periods of falling inflation.
Inflation tax
This is 1 of the most insidious economical phenomena – it works quietly, but ]]>affects all savings holder]]>. It is that, as prices rise, the real purchasing power of money is falling, and our savings are losing value, even if they stay nominally the same. The inflation taxation strategy is presented below.
Source: Own development
According to the above scheme, debtors, including the State, benefit from inflation tax. Nominal taxation revenues are increasing and the real value of debt is decreasing. At the same time, citizens can buy little and little for the same amount, although at first glance no 1 "takes away" their gold.
Another effect resulting from the alleged inflation taxation is the expanding number ]]>persons entering the second taxation threshold]]>. In Poland, the rate is 12% for income up to PLN 120 000 per year and 32% for value above that amount. The last valorization of the threshold took place in 2022, erstwhile it was raised from PLN 85 528 to the current level of PLN 120 000. Since then, despite advanced inflation, the threshold has remained frozen. The 2022 improvement "cut off" about 1 million people from the second threshold, but inflation "moved" them back there in just 2 years. In 2024 alone, nearly 2 million people gained income exceeding PLN 120,000, and forecasts of 2025 indicate that this figure will increase to about 2.5 million people. This mechanics makes nominal wage increases, which are only intended to offset the effects of inflation, mostly consummated by the State. The taxpayer, falling into a higher taxation threshold, pays a higher contribution than the income, the real value of which, given inflation, remained fundamentally unchanged.
Continue reading: ]]>Independent Trader - Saving and Investing]]>
]]>How to accomplish financial independence?]]>
Author: ]]>Bartosz Beerko]]>
