HOW DOES INFLATION AFFECT CONSUMERS PART II

DEMANDING INFLATION IS CASED WHEN THE INCREASED DEMAND FOR A CERTAIN GOOD IS NOT IMMEDIATELY MET. THERE CANNOT BE A RISE IN SUPPLY TO MEET THE RISE OF DEMAND RESULTING IN THE EQUILIBRIUM TO BREATH. A GOOD EXAMPLE FOR THIS IS THE DEMAND FOR WHERE-BASED GOODS THAT ARE USUALLY THE BASIC NEED OF A CONSUMER. WHEN THE DEMAND OF WHERE BASED GOODS INCREASE, THE SUPPLIER OR PRODUCER IS UNABLE TO MEET THE DEMAND IMMEDIATELY. THIS RESULTS AS AN INCREASE IN PRICES OF WHEAT-BASED PRODUCTS TILL THE TIME THE DEMAND IS MET DEMAND-PULL INFLATION AFFECTS THE ECONOMY AS A WHOLE.

WHEN THE ECONOMY IS AFFECTED BY THE COST-PUSH AND DEMAND-PULL INFLATION, COST OF LIVING IS AFFECTED DIRECTLY. CONSUMER PURCHASING POWER IS DAMAGED. INCOME REMAINS THE SAME BUT PRICES RISE RESULTING IN CHADS. INFLATION ALSO CAUSES FALL IN INCOME AS THE COST OF PRODUCTION INCREASES, MANY COMPANIES REDUCE THE WAGES TO MEET THE COST OF PRODUCTIONS. CONSUMERS ARE AFFECTED IN EVERY WAY. ON THE OTHER HAND, WHEN PEOPLE DEMAND AN INCREASE IN THEIR WAGES AND PAYS, THE UNIT COST PER LABOR INCREASES RESULTING IN THE DECREASE OF BUSINESS PROFITS. HOW DOES INFLATION AFFECT CONSUMERS?

THERE ARE MANY WAYS INFLATION AFFECT THE CONSUMER. SOME OF THEM ARE AS FOLLOWS DECREASE IN PURCHASING POWER DAMAGES INVESTMENTS REDUCED SAVING EFFECT ON DEBT DECREASE IN PURCHASING POWER COST-PUSH INFLATION CAUSES THE PRICES OF GOODS AND SERVICES TO BECOME HIGHER THAN NORMAL. THIS INCREASE CAUSES THE PURCHASING POWER OF MANY TO DECREASE, HENCE AFFECTING THE CONSUMERS DIRECTLY WITH A FIXED YEARLY INCOME ARE AFFECTED MORE TO THOSE WHO ARE RUNNING A BUSINESS AND DO NOT LIVE ON A FIXED INCOME. BUSINESS ORIENTED PEOPLE KNOW HOW TO ADJUST FINANCIAL LIFE, YOU NEED A 5% INCREASE IN YOUR YEARLY INCOME. THE HARD PART IS TO INCREASE YOUR YEARLY INCOME. INFLATION DAMAGES YOUR LIFESTYLE IF IT INCREASES FOR A LONG TIME PERIOD DAMAGES INVESTMENTS CONSUMERS MAKE AN INVESTMENT WITH A HOPE THAT THE ASSET OR SHARE WILL GENERATE AN INCOME FOR THEM. CONSUMERS MAKE INVESTMENTS ONLY TO HAVE MORE THAN ONE INCOME STREAM. ALSO, RISE IN PRICES OF GOODS OR THE OVERALL COST OF LIVING FORCES THE CONSUMERS TO INVEST IN BUSINESS, STOCKS ETC. 

INVESTMENTS CAN ALSO BE IN FORM OF BUYING REAL ESTATE, WHICH WILL INCREASE ITS VALUE OVER TIME. BUT INFLATION CRASHES THE DREAMS OF INVESTORS AND DESTABILIZES THEIR FINANCIAL SYSTEM. FOR EXAMPLE, IF YOU HAVE INVESTED MONEY AT AN INTEREST RATE OF 3% AND THERE IS A RISE IN INFLATION BY THE SAME RATE OF 3%, YOU WILL BE EARNING NOTHING OUT OF YOUR INVESTMENT. BUT IF THE INFLATION RISES EVEN MORE THAN 3% YOUR INVESTMENT WILL RESULT IN LOSS. THIS IS HOW INFLATION EFFECTS THE INVESTMENT OF A CONSUMER. REDUCED SAVINGS MAKING SAVINGS FROM A FIXED INCOME IS ONLY POSSIBLE WHEN YOU HAVE ENOUGH THOUGH OUT THE MONTH INFLATION AFFECTS A CONSUMER’S SAVING.

WITH THE INCREASE IN PRICES OF GOODS AND SERVICES, A CONSUMER’S INCOME IS MAY BE USED UP COMPLETELY AND QUICKLY, LEAVING NOTHING. IN SOME CASES, A CONSUMER MIGHT HAVE TO WITHDRAW FROM THE PREVIOUSLY MADE SAVINGS TO FULFILL THEIR NEEDS. INFLATIONS DEMOTIVATES THE CONSUMER TO SAVE MONEY AS THE PRICES ARE HIGH AND THERE IS NOTHING MUCH TO SAVE. SUCH LONG TERMS PERIODS MAY LEAD YOU TO A LOWER STANDARD OF LIVING AND BY THE TIME YOU RETIRE, YOUR BANK ACCOUNT MAY END UP HAVING INSUFFICIENT SAVINGS. EFFECT ON DEBTS WHEN A CONSUMER WANTS TO MAKE A LARGE PURCHASE BUT DOES NOT HAVE THE REQUIRED FUNDS FOR IT, THEY BORROW MONEY FROM SOMEONE.