SHARETIPSINFO >> Articles Directory >>Inflation – Major concern now days
It is an increase in the general level of prices of goods and services in an economy over a period of time. Inflation is deterioration in the purchasing power of money. Inflation is measured as an annual percentage increase. When there is inflation the value of dollar does not stay constant. Value of dollar is analyzed in terms of purchasing power, which are the real tangible goods that money can buy. When inflation goes up, there is a decrease in purchasing power of money. It is basically an economic concept. Inflation makes the worth of money reduced. You can understand it with a very simple example i.e. A movie ticket was for a few paisa in our mom’s time, now it’s worth 200 bucks. This is what inflation is, price of everything grows up.
There are two very important things to be considered:
- Do not keep your money Stagnant. Always invest money. If you will just save your money by putting it in safe it will lose value over time. It is recommended to invest your money if you do not know where to invest then put it in bank. Let the money grow by interest.
- When investing your money, you have to make sure that the rate of return on your investment is higher than the rate of inflation.
By how much do the prices go up?
The rate at which the price of everything grows up is called ‘rate of inflation’. For example if the price of a toy is 200 bucks this year and the next year price becomes approximately 208 bucks then the rate of inflation is 8%. So it is necessary for you to know that when you make an investment, make sure that your rate of return on the investment is higher than the rate of inflation in your country.
Inflation basically is Debasement of the currency. Causes of inflation are as follows:
- Demand-Pull Inflation: It means if the demand is growing faster than supply, prices will increase. It can be summarized as “too much money chasing too few goods”.
- Cost-Push Inflation: when the cost of companies grows up, they need to increase the prices to maintain their profit margins.
- Menu-costs: with high inflation, firms must change their prices often in order to keep up economy wide changes. But changing prices itself is a bigger and expensive activity to be undertaken.
- Built-in Inflation: it includes the workers trying to keep their wages up with prices and companies passing this higher labor costs on their customers as higher prices.
Inflation affects different people in different ways. It also depends on whether inflation is anticipated and unanticipated. Anticipated inflation is when the majority of people expect increase in the rate of inflation that means when you can compensate and the cost is not high. When we talk about Unanticipated inflation there are so many problems that can arise such as if the inflation rate is greater than that of other countries, domestic products become less competitive. People living off a fixed-income such as pension; see a decrease in their purchasing power. Creditors lose and debtors gain if the lender does not anticipate inflation correctly. If the prices grows up then the wages should be rising too. Some people often ignore this fact.
Inflation strengthens our economy. It is a sign that our economy is increasing. Lack of inflation can be the indication that economy is weakening. Inflation depends upon your personal situation as well as on economy. High inflation rates are regarded as harmful to an overall economy. This makes it difficult for the companies to budget for long-term.
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