Inflation is eating your hard-earned savings. 💰
Thank Satoshi, we now have a way of defending ourselves against this beast.
To protect yourself from inflation, follow along this thread!
🧵👇
1/ Inflation is described as the gradual increase in prices and decline in purchasing power of money over time.
While the short-term effects of inflation may appear negligible, over a long period, inflation reduces how much your money is worth.
2/ Inflation refers to the decrease in purchasing power when prices of goods and services increase.
The inflation rate is the rate at which the value of money declines as prices for things such as food, clothing, consumer staples, transport, and utilities increase.
3/ For example, a US coffee cup cost around $0.75 in 1990. In 2010, a tall cup of Starbucks coffee cost around $4.
If you saved a $10 bill from 1990, you would buy fewer cups of coffee two decades later.
Buy #bitcoin, not Starbucks.
4/ However, you should not consider inflation as higher prices for a single item or service.
Inflation is the holistic rise in prices across a sector of industry, such as the manufacturing or food industry, and ultimately a nation’s entire economy.
5/ On the macro level, high inflation and high cost of living are the most common causes of the deceleration of economic growth
Economists argue that prolonged inflation happens when a country’s monetary supply far outpaces the economic output
The 'brrrr' phenomenon is to blame
6/ To neutralize this, central banks have long put measures in place to manage the supply of currency and regulate financial markets to bring inflation under control.
However, as we have witnessed in the past two years, excess money printing increases inflation. 💸
7/ That’s exactly what we are experiencing now.
How do you measure inflation?
Inflation is primarily measured by three main indices, the consumer price index (CPI), the wholesale price index (WPI), and the producer price index (PPI).
9/ While the names of inflation indexes vary from country to country, the methodology used to calculate inflation is more or less the same everywhere.
10/ Since no index can capture the full range of price changes in an economy, multiple price indexes are used to predict the inflation rate accurately.
11/ That being said, the basic formula to calculate the inflation rate is:
Inflation rate = (Final CPI Index Value/Initial CPI Value) x 100
12/ Inflation doesn’t just affect your expenses. It also impacts your savings.
> The value of your savings declines as the purchasing power of money falls.
13/ For example, if you save money in your bank account that pays you 1% interest, but the inflation rate is 5%, the money in your account loses 4% in value.
So the item(s) you planned to purchase will most likely become more expensive.
14/ If you are a retiree on a fixed pension, a high inflation rate will erode your pension’s purchasing power, negatively affecting your standard of living.
15/ So is #bitcoina hedge against inflation?
Bitcoin is considered a hedge against inflation due to its disinflationary characteristics.
Out of bitcoin’s total supply of 21 million coins, around 19 million have already been mined.
16/ The remaining coins are entering circulation at an increasingly slower rate.
> Existing holders are incentivized to hold onto their bitcoin as increasing demand is met with a limited supply, resulting in a disinflationary scenario = number go up!
17/ Now compare this to fiat money, where governments can increase money circulation by printing more money, decreasing purchasing power and inflation.
Thank Satoshi for #bitcoin 💙
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