The Importance of Inflation and Its Impact On The Economy

Inflation: Importance and Economic Impact - IB Economics

Alright, let's be real - most of you probably hear "inflation" and think "boring economic stuff my parents worry about." But what if I told you inflation is basically a financial secret agent that's quietly planning to dictate your financial life? Intrigued? You should be!

When Your £5 No Longer Buys a Decent Meal Deal

You've just scored your first job after uni. You're feeling proper chuffed about your £25,000 salary. Fast forward 15 years - you're still earning the same amount (grim scenario, I know, but stay with me). Here's the thing: that £25K won't buy nearly as much as it did when you started.

With 2% inflation (what the Bank of England aims for), your £25,000 will actually only buy what £19,000 would today. Bump that up to 6% inflation, which we've seen recently in the UK, and your purchasing power plummets to just £10,500. Ouch! That's like someone nicking half your money in your sleep.

Think about it this way: that Greggs sausage roll that costs £1.60 today? At 6% inflation, in 15 years it'll cost over £3.80. Your daily coffee habit? Prepare for serious pain.

Inflation The Ultimate Winners and Losers Game in your IB Economics Course

Here's where inflation gets properly wild - it creates winners and losers like some twisted economic Hunger Games.

The Winners:

• Got student loans? Inflation is actually your bestie! That £50,000 debt will feel smaller each year as inflation rises

• Anyone with a fixed-rate mortgage (basically, inflation makes your debt shrink in real terms)

• The government (their massive national debt becomes less scary)

The Losers:

• Your grandparents on fixed pensions

• Minimum wage workers waiting for politicians to raise their pay

• Anyone with cash savings (your emergency fund is literally melting away)

• That mate who lent you £100 last year and still hasn't asked for it back

Remember when house prices in London reached obscene figures while your wages barely moved? That's inflation playing favorites - property owners winning, renters losing.

Why Can't We Just Plan Stuff Anymore?

Ever tried making plans with that one dodgy friend who might show up anywhere between 5 minutes and 3 hours late? That's what running a business during high inflation is like.

When Tesco doesn't know if supplier costs will rise 2% or 10%, how do they price their products? When British Airways can't predict fuel costs, how do they set ticket prices? When you don't know if university will cost £9,250 or £12,000 per year in the future, what saving system do you follow?

Countries with unpredictable inflation see people hoarding gold or buying property instead of investing in businesses. Think about it - would you lend money to your mate's startup if you had no clue what that money would be worth when they paid you back?

For access to all IB Economics exam practice questions, model answers, IB Economics complete diagrams together with full explanations, and detailed assessment criteria, explore the Complete IB Economics Course:

Real Talk: Why Should You Care for your IB Economics and Beyond?

Because inflation is already messing with your life:

• That PS5 you've been eyeing? Price just went up again

• Your rent increase this year? Blame inflation

• The reason your parents bang on about property prices? Inflation

• Why a festival weekend now costs more than your monthly food budget? Inflation again

Every episode of Pint-Sized links back to what matters most for your IB Economics course:

• Understanding key IB Economics concepts

• Applying them in real-world IB Economics contexts

• Building IB Economics course confidence without drowning in dry theory.

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The UK's inflation rate hit over 11% in 2022 - the highest in 40 years! While it's come down to 2.6% (April 2025) since then, we're still feeling the effects. Just ask anyone who's bought groceries lately.

Understanding inflation isn't just for economics nerds. It's about knowing why your money doesn't stretch as far as it used to, and making smart decisions to protect your financial future. Because let's face it - that morning breakfast isn't getting any cheaper.