HOW DOES INFLATION AFFECT CONSUMERS PART III

THAT SOMEONE CAN BE BANK OFFERING LOANS OR AN INDIVIDUAL OFFERING DEBTS ON INTEREST. THE AMOUNT OF MONEY BORROWED FROM SOMEONE IS DEBT. INFLATION AFFECTS BOTH THE DEBTOR AND THE CREDITOR DURING THE PERIOD OF PRICE INFLATION, THE CREDITOR IS AFFECTED THE MOST. SINCE THE PRICES INCREASES, THE VALUE OF THE AMOUNT GIVEN BY THE CREDITOR TO THE DEBTOR WILL DECREASE. THIS HELPS THE DEBTOR AS HE IS PAYING BACK LESS AMOUNT MONEY AND THE CREDITOR IS GETTING LESS AMOUNT OF MONEY. FOR EXAMPLE, IF SOMEONE BORROWS $1,000 IN 2016 INFLATION HITS IN THE NEXT COUPLE OF YEARS MAKING THE VALUE OF THAT $1,000 TO DETERIORATE TO $000 DUE TO INCREASE IN PRICES. BUT IN THE CASE OF WAGE INFLATION, BOTH THE CREDITOR AND DEBTOR ARE BENEFITED.

THE CREDITOR HAS POWER TO PAY BACK QUICKLY DUE TO AN INCREASE IN INCOME. ON THE OTHER HAND, THE DEBTOR WILL BE RECEIVING MONEY BACK QUICKER. SO IN SOME TIMES INFLATION DOES HELP IN GENERAL, CONSUMERS ARE AFFECTED BY THE INFLATION IN MANY WAYS. BUT THE IMPORTANT PART IS HOW THE CONSUMERS CAN MAINTAIN THEIR STANDARD OF LIVING DURING THE PERIODS OF INFLATION. SOMETIMES INFLATION IS GOOD FOR THE ECONOMY AS INFLATION AND DEFLATION HELP REGULATE PRICES OF GENERAL PRODUCTS. WHEN THE PRICES INCREASE BY TOO MUCH, AGGREGATE DEMAND FALLS RESULTING IN THE PRICES TO FALL AS WELL, THIS IS WHERE DEFLATION HAS TAKEN PLACE. WHEN THE PRICES DECREASE, THE DEMAND IS INCREASED.

SUCH DEMANDS ARE HARD FOR THE SUPPLIER TO MEET, SO THERE IS AN INCREASE IN THE PRICES RESULTING IN INFLATION. FOR A STRONG ECONOMY, THIS CYCLE SHOULD CONTINUE TO KEEP THE DEMAND AND SUPPLY STEADY, INCREASE THE PRODUCTION AND MAKE THING EASIER FOR DEBTORS. EACH YEAR WE SEE THAT THE PRICES OF THE GOODS AND SERVICES GET HIGHER. THE PRICE OF PETROL IN 2008 WAS AROUND RS80 IN 2013, AFTER AROUND 5 YEARS, THE PRICE HAD RISEN TO RS105. THIS ANNUAL (OR MONTHLY DEPENDING ON HOW WE MEASURE IT) INCREASE IS KNOWN AS INFLATION. TO UNDERSTAND THE EFFECTS OF INFLATION ON CONSUMER, WE MUST FIRST GET INTO WHAT INFLATION REALLY IS. INFLATION IS THE SUSTAINED INCREASE IN THE PRICES OF GOODS AND SERVICES IN AN ECONOMY OVER A PERIOD OF TIME. IF COULD BE AN INCREMENT MEASURED MONTHLY OR YEARLY. IT USUALLY HAS A VERY REVERSE EFFECT ON THE ECONOMY OF A PERSON AND A COUNTRY.

THERE ARE 5 TYPES OF INFLATION, HYPERINFLATION, ASSET INFLATION, CREEPING INFLATION, WARNING INFLATION AND GALLOPING INFLATION. HYPERINFLATION IS THE WORST TYPE. IT’S WHEN PRICES RISE MORE THAN 50% A MONTH. IT’S VERY RARE BUT IT HAS HAPPENED. SINCE MOST OF THE ECONOMIES ARE NOT FULLY BACKED BY EITHER GOLD OR SILVER, THE ECONOMIES ARE THEN RUN ON FLAT MONEY, WHICH MAKES IT EASIER TO MANIPULATE INFLATION DUE TO SEVERAL REASONS MOTIVATED EITHER POLITICALLY OR ELSE. ONE SUCH EXAMPLE IN HISTORY COULD BE IN THE FORM OF INDONESIA OR GERMANY. IN 1928S, GERMANY WAS STRUCK BY HYPERINFLATION.

SINCE GERMANY HAD LOST THE WORLD WAR 1, THE VICTORIOUS NATIONS ASKED IT FOR COMPENSATION OF THE LOSSES THEY FACED DURING THE WAR AT THE HANDS OF THE GERMAN. THE GERMS COULDN’T PAY THEM BACK IN GERMAN CURRENCY BECAUSE OF ITS SUSPECT DUE TO PREVIOUS MASS BORROWING SO THE GERMANS MASS PRINTED THE THEIR PAPER NOTES WHICH LED TO A DEVALUATION OF THEIR CURRENCY WHICH IN TURN LED TO HYPERINFLATION IN THEIR COUNTRY. ASSET INFLATION IS THE MILDEST AND OCCURS VERY OFTEN. ONE SUCH EXAMPLE COULD BE THAT THE PRICES OF VEGETABLES AND FRUITS SO UP EVERY YEAR. THIS IS DUE TO THE ANTICIPATION OF RISING DEMAND. CREEPING INFLATION IS WHEN PRICES RISE BY A FIXED AMOUNT ANNUALLY. IT’S SOMEWHAT COMMON.