The Effect of Inflation to Us

December 3, 2009 by  
Filed under Financial Tips

Inflation is an increase in commodity prices and a decline in the purchasing power of each dollar. Nowadays, it is made acceptable to have a steady inflation of about 1% to 4% annually. However, excessive inflation or an unexpected increase in inflation may be harmful. Inflation can affect a variety of businesses and industries, particularly lenders. Moreover, people living on fixed incomes, like pensioners or disabled people can see their purchasing power decline. Government grants are adjusted periodically for inflation, however, happens only once every few years. During the period between inflation and adjustment, inflation may cause sudden drop in purchasing power for people on fixed incomes, reducing their living standards by reducing their consumption of goods and services. Fixed income from private sources, such as pension plans, may or may not be adjusted for inflation, by forcing addicts to be subjected to risks of inflation.

Moreover, the greatest rate of inflation have caused uncertainty about the direction that will take the economy for the future. This can lead to a certain fear of spending for individual and business, until they feel comfortable in economic conditions. The decrease in spending even more thus affect the economy by reducing sales by suppliers of goods and services. Meanwhile, the prices increase and workers will expect higher wages to compensate. This demand for higher wages, combined with lower demand for goods and services, can lead to a rise in unemployment, forcing companies to thank their employees.

In general, inflation affects the majority of society. However, we can say that everything is fine provided that economic activity continued at a respectable pace, and inflation did not benefit too much to those who have relatively high levels of real assets (ie property, material, etc.. ). This is because inflation reassess the value of assets higher, while the relative value of debt increases.