The effects of economic inflation

yousef8 July 2022Last Update : 2 years ago
The effects of economic inflation

Economic inflation causes a decrease in the purchasing power of the currency, due to the rise in prices in all economic sectors. Inflation requires an increase in the prices of goods and services, such as those that constitute the most common measure of price changes such as the Consumer Price Index (CPI), and when the prices of goods rise non-discretionary and irreplaceable; Like food and fuel, they can affect inflation, which is why economists exclude food and fuel from looking at core inflation.

Impact on debtors

Economic inflation positively affects debtors, as it provides the opportunity to pay off debts with less valuable money; For example, if the individual owes $100,000 at 5% interest, and inflation rises to 20% each year, then 15% of the debt will be paid each year, and if inflation continues, the individual will be able to obtain the minimum wage, which is estimated at 100 dollars an hour, and the ability to pay off his debt.

Impact on the purchase of goods

Price inflation affects consumers’ ability to pay for goods, according to the basic concept: if the employee’s wages are constant and the cost of the commodity rises, he will not be able to bear the higher expenses, while in the event of wage inflation, people will be able to buy more products.

Negative impact on the economy

The high, negative, or uncertain value of inflation negatively affects the economy in several ways, the most important of which are: causing instability in the market, in addition to preventing companies from making major investment decisions, and may cause unemployment, and enhance people’s hoarding of goods. and necessary commodities, and this practice may lead to an increase in prices, an imbalance in international trade, and an impact on foreign exchange rates.

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