Archive for the ‘inflation’ Category
Inflation can be defined as a persistent surge in the general level of prices. ‘Persistent’ alerts us to one important feature of inflation: it happens over several periods. ‘General’ alerts us to a new: inflation occurs throughout the market, while using prices of several items rising within the same period. Inflation decreases the valuation on money because each dollar buys less.
High rates of inflation may have serious social, economic and political consequences. Many of the results of rapid inflation are:
(i) It can penalize people on fixed incomes, like pensioners and self funded retirees, since their income does not rise as rapidly as prices, so they really are able to buy fewer products or services.
(ii) Inflation is likely to redistribute income from low income groups to higher-income groups because low income groups have fewer real assets like property, that might surge in price, and so are in jobs where it is sometimes complicated to acquire a pay rise to assist offset the effects of inflation.
(iii) People lose faith in currency as being a store worthwhile and frequently borrow wherever possible to buy ‘real’ assets like gold, houses and antiques, the price tag on which is likely to rise faster compared to general inflation rate.
(iv) Forecasts with the rate of return on capital investments become unreliable, which makes businesses unwilling to execute long-term projects. Because of this, future living standards is probably not up to they will have been.
(v) If the rate of inflation in the country is higher than the ones from its major trading partners, the ability of that country to compete on world markets is damaged.
(vi) High inflation rates cause higher interest rates.
Different groups in society have different abilities to protect themselves from your effects of inflation. Powerful entities – trade unions, large companies, wealthy individuals – could possibly improve their share of national income on the tariff of weaker groups – pensioners, the unemployed, and other groups that depend on social welfare. Thus, persistently high inflation can threaten social and political stability.