What Is Inflation ?
Inflation refers to the economic force that decreases the purchasing power of money that leads to rise in the prices of goods and services over a specific period of time. It increases the cost of living and decreases the savings. It increases the interest rates and also impacts international trading and investments.
Major Effects Of Inflation In Our Daily Life And Economy
The main effects or impact of inflation can be listed as follows:
1. Reduce Purchasing Power
The main impact of inflation is decrease in purchasing power or value of money. People have to spend more money to buy goods or services.
2. High Cost Of Living
Due to the decrease in purchasing power of money, cost of living become high. So, low income group people are highly affected by inflation.
3. Decrease In Saving
Because of high expenditure or high cost of living, inflation discourages saving.
4. Decreased Investment
Because of decrease in saving, capital formation will be reduced. So, investment will also be decreased.
5. Unemployment
Production capacity will reduced because of low investment. It may lead to unemployment.
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6. Uncertainty
Inflation may lead to business uncertainty. It also effects foreign investment in the country.
7. Instability
Inflation may lead to robbery, bribery, theft, black marketing and political instability in the country.
Impact Of Inflation Explained Briefly
* It leads to decline in real income that decreases the purchasing power and living standard
* It brings uncertainty in the economy
* It may increase the borrowing costs and interest rates
* It affects savings and investments
* It may generate unemployment problem in the country
* It weakens the currency that impacts international trade
