Inflation has the following adverse effects on the economy
Here is story of Mr. Bechara (common man)
Inflation and Purchasing Products
Purchasing Power-The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing power is important because, all else being equal, inflation decreases the amount of goods or services you'd be able to purchase. Mr. Bechara is fetching a salary of Rs. 20K monthly, he was doing his best to keep up to the expectations his oversized wife and extra demanding kids, Now in inflation his salary is the same but his 20K will now cannot complete the demands of his family, because that 20K has become equivalent to say, 18K and now they can have less resources in the same prices, This will result in the debt conditions, lesser purchase of goods and services (due to higher prices) and will directly hurt the economy.
Inflation and Debt
Price inflation is a debtor's best friend and a creditor's worst enemy. Letâ€™s see how, our Mr. Bechara gave Rs. 10K to a debtor in 2006 for a period of three years, after two years inflation occurred, now the value of that 10k becomes equivalent to 8k (loss in the value of Rs), The effect of inflation on debtors is positive because debtors can pay their debts with money that is less valuable.
Other Negative Impacts
- Black-marketing- Expecting inflation many mafias start to collect the onions and kerosene in their backyards for releasing these when the inflation strikes, hence they will make big bucks in no time and our Mr. Bechara has to pay more than hefty amount for the daily ka aaloo, pyazz.
- Unemployment- Inflation comes along with a gift package of unemployment, companies with limited resources will start to fire people on the name of cost cutting and also the new recruitments will not happen resulting in not so aache din for aspirants.