People see the periodical changes in the prices of goods and wonder how the economy and their lives are affected by inflation. There are many plans that they make for their families and retirement, which may need to be reviewed every time the inflation increases drastically. The experts feel that inflation, at least a little bit of it is good for the economy, but what do people feel about it when they find many things out of their reach? Of course, disheartened and unhappy. So let us see how inflation affects people and society.
- The most important aspect is that; it reduces the purchasing power of people. The essentials will still be purchased, like food and healthcare. But the other goods and services may see a decline in their sales, which are considered non-essential.
- It is a contradictory scenario. People will see that the value of money is decreasing so some of them will also try to buy in bulk and hoard for future. This may include people buying non-perishable goods like clothes and shoes for their children in future sizes.
- Many people try to invest in gold and other high-interest instruments to create a better corpus of funds and this may or may not work with the value of money going down with increasing inflation. With the purchasing power going down you do not really know whether your investment will appreciate or depreciate. People who bought shares in Apple or IT companies made huge profits; however, some companies went bankrupt.
- The spending and investing may increase the inflation further. With hoarding, stores become emptier and more people start buying out of sheer anxiety. This may further increase the costs and prices. On the other hand, the available money in the market starts decreasing as people invest that or heard that. The government may be forced to print more currency and then inflation goes up as the money is further devalued. This vicious cycle goes on.
- The governments try to increase interest rates so that people borrow less money and this works two ways. People may borrow less of the interest is higher than the inflation. The money is scarce and it would make sense to save and spend wisely. But if the interest rate is lower than the inflation then people would not mind borrowing more and use the money now than wait for it to lose its value.
We can see that inflation is not really easy to comprehend and yet it is an integral part of our lives. It affects people’s confidence as it is difficult to understand whether to save or spend or borrow every time there is some fluctuation.