Making Money with Inflation Inflation is the continuous, all-encompassing increase in the price level measured by an index of the cost of various goods and services. Recurring price increases erode the purchasing power of money and other financial assets with fixed values, creating serious economic distortions and uncertainty. Inflation occurs when real economic pressures and the anticipation of future developments cause demand for goods and services to exceed available supply at existing prices or when available production is limited by faltering productivity and market constraints. Sustained price increases have historically been directly linked to wars, poor harvests, political upheavals or other unique events. When the upward trend in prices is gradual and uneven, averaging only a few percentage points each year, such creeping inflation is not considered a serious threat. to economic and social progress. It could also stimulate economic activity: the illusion of personal income growth exceeding actual productivity can encourage consumption; real estate investments may increase in anticipation of future price appreciation; business investment in plant and equipment could accelerate as prices rise faster than costs; and private, corporate, and government borrowers realize that loans will be repaid with money that potentially has less purchasing power.1 Greater apprehension is the growing prototype of steady price increases characterized by much higher price increases, at rates annually from 10 to 30% in some industrialized countries and even 100% or more in some developing countries. Chronic inflation tends to become permanent and increase to even higher levels as economic distortions and negative expectations accumulate. To deal with chronic inflation, normal economic activities are disrupted: consumers purchase goods and services to avoid even higher prices; real estate speculation increases; businesses focus on short-term investments; incentives to acquire savings, insurance policies, pensions and long-term bonds are reduced as inflation erodes their future purchasing power; governments rapidly expand spending in anticipation of inflated revenues; and exporting nations suffer from competitive trade disadvantages that force them to resort to protectionism and arbitrary currency controls. One smart thing an investor should do during the inflation period is to buy stocks in the form of a house. One reason to start here is because you are borrowing money. As long as the rate of borrowing money is lower than the rate of inflation, which is usually the case because interest rates move more slowly than inflation, there will be profits in the long run..