Inflation and Recession Explained
BY ROXY ALLNUTT
Getting my head around the ‘diminishing’ economy.
5 SEP - 2022
Basically, inflation is high, and that's bad. We don't like inflation
If you’ve turned to the news recently, you would have seen a slew of panic-inducing words like "recession," "inflation,” "depression,” and the fearmongering of these "unprecedented times."
For a few reasons, I haven't fully grasped what the hell is going on. One, it’s confusing; and two, because I don't have significant investments, I feel like it doesn't really affect me. Also, because I don't come from a ‘numbers’ background, trying to understand what is going on is pretty overwhelming and unencouraging.
So many are in that murky grey space, still recovering from the intensity of lockdowns and losing work. Freaking out further about the economy's lack of money will send me into my own great depression.
The good thing about being a young woman who’s taking the plunge to write and gather a sense about inflation for other young women is that I have a wealth of friends in similar positions to me that I can figure this out with, right? Wrong. We all don’t have a clue.
Talking about money can feel overwhelming, but the reality of the matter is that I am far from alone. But this sucks. Everything around me at the moment lies within these inflation and recession mutterings, and I just want to figure it out.
So earlier this week, I sat down with the Shit You Should Care About Podcast on full blast. Then I shared coffee with my finance-brained bestie James to break it down and figure this one out.
Here are My Learnings
Inflation is becoming more and more relevant the further we get into this recession. Hence, the vocab being all over the media. New Zealand released this month's inflation numbers, which were the highest in 30 years. The inflation rate has gone up 7.3% in the last year. The bigger problem is that most Kiwis' pay has not risen by 7.3% to support this. This means that your day’s work is essentially worth 7.3% less than it was last year. So everything is now 7.3% more expensive, and many of us haven't had a pay rise to reflect that.
There has been an 18% increase in house prices since last year, meaning that a $500,000 piece of land would cost $590,000 this year. The average wage in NZ is $60k, which shows that the average Kiwi can only JUST afford the increase. So with that, rents go up, construction rates go up, and house prices continue to increase.
Another significant driver is transport costs. Petrol prices have been up 32% since last year, and diesel prices have increased by 74%. Everything we buy, whether it’s from the supermarket or mall, travels on a diesel-powered vehicle. This means that it costs 74% more to move that product, hence a strong reason why prices will rise.
Recession?
Let's define a recession. A recession is a temporary economic decline during which trade and industrial activity are reduced. This is generally identified by a fall in the GDP in two successive quarters.
So in millennial English, this means that for at least six months or two quarters of the year, there's a decline in the stock market. A recession is when our economy goes down, or a country becomes less productive or doesn't produce as many things. If we look at history, a recession tends to last between six months - two years, so they can be short or kind of long, but we know (from history) that they always come back.
Okay, so why don't we just print more money?
If our government spent a few days printing more money, the dollar I have in my hand would be worth less. This is why we see so many countries going bankrupt and corrupt because printing money simply isn't the answer, and it has never been. Our governments can’t do a lot. Gas prices, for example, are subject to the supply chain, and we know that the cost of petrol is rising.
Should we be concerned?
Apparently not.
James says, “I don't think we should be that concerned. As a young person that doesn't have a house, working full time, you're in a decent place. One day, everything will bounce back. The best thing you can do, which sounds somewhat boring, is save. Cut down on unnecessary spending, all that crap. Keep your money saved, and you will be ready to reinvest when everything turns around.”
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