Impact of Inflation on Economy

Impact of Inflation on Economy

Inflation refers to the high rise in prices of goods and services.  Inflation will not only make the poor but also make the rich to suffer.  Thus all the segments of society like the farmers, working class and businessmen are affected by inflation.  Inflation is measured by consumer price index.

This review is on the impact of inflation on the economy:

 

Impact on investment-Equity holders will start losing money.  Their value of investment starts to depreciate.   Diversification of investment would be badly needed to prevent loss.  Hence investors should learn about various opportunities like cryptocurrency trading using bitcoin loophole app, online share trading etc.

Reduces purchasing power:  Inflation reduces the purchasing power of people.  This is because the same amount of money would fetch little goods than it used to.

Money loses value:  Inflation reduces the value of money.  The weakening of currency is a very common phenomenon.  Hence exporters would face the loss of demand and importers would face high payments.

Intention to stock goods:  Inflation creates panic among consumers and makes them to stock more of goods in the fear that prices would further increase.

Leads to hyperinflation:  At one point, the prices keep rising and this leads to hyperinflation.

Rises loan costs:  Cost of borrowing becomes very high under inflationary conditions.

High price leads to hoarding:  Price rise due to inflation results in unethical practices like hoarding and black marketing. Profits will be aimed through dishonest means rather than production and sales.

Increase in tax:  The government will be also affected by inflation.  In order to provide subsidies in view of price rise, they might start levying more taxes.  More taxes will result in dissatisfaction among people.  Hence stability of the government will be affected and this leads to political unrest.

Lowers morale:  Inflation lowers the morale of the people.  The constant price rise builds stress.  The common man will be subjected to more difficulties.  This results in lowered satisfaction and motivation.

Inflation at a slight pace is beneficial since this will result in benefits like motivating businessmen to improve production.  Also, moderate inflation will boost up employment opportunities.  A slight rise in food prices will benefit farmers indirectly.  For them, the cost of cultivation would more or less remain the same.  But the rise in food items will fetch more revenue.

 

But hyperinflation is not good for the economy.  Under hyperinflationary conditions production, employment and farming will come to stand still.  At one point consumption would drastically reduce.