Quite obvious how many people here too Economics.
Inflation is in place to stop people spending and borrowing money by raising it's value essencially making things cost more.
The example of the house is silly, because there is NO bank in the world that gives you 0% APR.
What your looking at is £200,000 would be borrowed to buy a house, this would be paid back over 25years say.
Now this is originally divided up by the value of the house... ie
200,000/(12 * 25) = Original Payback Price Per Month
Most banks give you around 8-10% APR on this though, so each year what you have to pay back will be raised by this ammount.
ie. First year usually costs 0% APR so £667/month (£8,000/year)
next year this is raised lets say by the minimum 8%.
So £8,000 * 8% = £8,644 the next year... this in turn grows the next year, etc, etc...
The value of your house however will only raise by the inflation rate, which is usually between 0.2-0.5% (depending on how much the government / treasury believes it is needed) every 6month review.
So although you house will jump to lets say min rate again, £208,000; you will find that although you've gained £8,000 value on your home, the overall value you are paying back has raised double that.
If we take this into account for 25years of repayment.
You home will have raised to £330,000 ... your cash will be worth approx £1 ~ £0.92 (meaning your take home is worth around 8% less in total), but your morgage will have come to a grand total of £583,452
ofcourse this is assuming a stable market model which is very unlikely.
Banks make so much damn money from inflation it is ridiculous, because although you can say 'well money is worth less', even taking into account the dropping worth they would still be making £368,940 from you.
this is provideding the same perfect market.
As for the cost of things... Americans spend less and earn more. This is a fact of life people.
It's not that they're any more sensible with money, it is just thier government gets such a surplus of cash from taxes each year that they very rarely have to be *as* extremely with inflation as the UK do.
Good example is Gas/Petrol. Americans will but thiers for ~$2/Gallon ... Brits pay ~£0.80/Litre (4.55 Litre to the gallon) so we end up paying around £3.65.
This seems a bit extreme now, but remember the adverage wage stateside is roughly double what it is britside...
So say your a computer phone technician. US would earn ~$15/hr, UK would earn ~£7/hr.
This means that if you takes this into account not only are we literally paying double, economically we're paying double again and physically changing the money we're paying Quadruple.
This is probably the most extreme case, however is it not an isolated fact. Generally speaking spending power is half and good are between 50-200% more depending on if it is an import or not. Often is the case, things we import we pay alot less for.
