http://www.zonefootball.net/inflation/
What are the effects of inflation is being India's economy?
Recent news is there. Everyone is talking about high inflation. Just want to know how exactly is being done to the economy.
Inflation is' persistently higher level general price "measured against a standard level of purchasing power. This measure is provided by the Index of Wholesale Prices (WPI) or Consumer Price Index (CPI) which measures the changes in nominal prices. GDP deflator, other criteria also measures inflation, but in terms of new products and services that may created. It devalues the value of money. Inflation is a recurrent phenomenon, but only intermittently. A key feature of inflation is that price increases are sustained. Causes 1. Caused by excess demand in the economy (demand-pull inflation) 2. Caused by high costs (cost-push inflation) 3. Caused by an excessive increase in money supply (for economics). 4. Built in inflation caused by adaptive expectations (Price / wage spiral) In the long run, inflation is a monetary phenomenon. In the short to medium term is influenced by the relative elasticity of wages, prices and interest rates. Causes often amount to the same thing. Life beyond the resources of the nation. Too much money chasing too few goods. The inflation-unemployment trade off in the short term Philips curve. A little inflation is viewed positively, as it offers investment incentives. Effects: Along with the general rise in prices, prices of raw materials, intermediate products, capital goods, factors of production, etc are also rising prices rising capital goods would require more large profits retained by companies. Companies may declare dividends lower (for a given level of benefits). The competitive position of companies eroded. Product price increases inevitable which may lead to decreased demand (Depends on the price elasticity of demand for the product.) Others affected are the variables macro interest rate, exports, foreign exchange (currency) and future expectations. Effects of Inflation: o increased uncertainty may discourage investment or savings and redistribution + is redistribute income from citizens on fixed incomes, like pensioners and the changes that those who draw a variable income (eg benefits) or the redistribution of wealth from lenders to borrowers of government is a net debtor and inflation therefore the benefits of government debt, hence inflation is considered a "hidden tax" or international trade: If the rate of inflation in a country is greater than what you get abroad, a fixed exchange rate is undermined through a weakening of the trade balance. Soap shoes or costs: Because the value of cash is eroded by inflation, people tend to have less money during times of inflation (reference to increase customer trips to banks wear shoes!) or menu costs: The Companies must change their prices more frequently than imposes costs (restaurants having to reprint manus often to reflect higher prices.) or the distortion of relative prices (Business): Economic discussions will be distorted relative prices (some companies pushing up prices due to the elasticity of demand, while others are forced to keep prices stable because of the elasticity of demand) do not reflect relative scarcity of various goods. Effect depends on the rate of inflation and the nature of the economy. Impact on households in the sector: inflation directly reduces the purchasing power of the household sector-first, non-essential luxury exp /. falling real income limits of the cost of several essential elements that also reduced standard of living lower discouraged saving cash, goods storage physical (gold) fixed-income groups suffer most from "The areas where income is related to prices (business) will not be affected in the short term. impact on businesses: Moderate inflation (2-3%) good, initially, companies benefiting from rising prices. Soon, demand falls as consumer to reduce consumption. Fall different for different commodities based on the price elasticity of demand. Production costs are rising, especially if wages are linked to inflation-index increase costs, squeezing profits. Remedy: reducing costs and enhancing efficiency, new investment risk, adjusted to the change in consumption patterns-Gov. environmental policies is important, competitive changes in the composition of industrial output change. Some companies profits, the competitiveness of exports affected and the possibility of depreciation and rising costs of imported raw materials. Impact on borrowers and creditors: income redistribution from creditors to debtors, repayment of debt in depreciated value as purchasing power has eroded to the extent of inflation. Impact on Govt.: Govt. spending increases with the increase in the price level of austerity measures. fiscal defict (difference between Govt. Revenco and exp.). The induction of more currency (To cut deficit) can worsen inflatory pressure. Govt. restrictive wage freeze may initiate policies, tight monetary policy (Higher interest rate) etc.
