why inflation is good

Why inflation is good for you, want to know?

Why inflation is good for you, want to know?

All over the country inflation is always underestimated. Be it among any group of people, profession, business, and work. Inflation runs some sort of tension and fear among the country. People are unaware of the benefits behind it.

Like every good thing takes time. Inflation brings you vast benefits gradually. It doesn’t hit any specific group of people but hits from every angle. The value of currency changes. The cost of purchasing increases and affects the living of people.

why inflation is good
why inflation is good

Inflation affects every area like salaries, wages. Food prices increase, transportation charges increase gas price increases. The prices of many other goods go up. While inflation has its effects in various areas it also has various benefits which people often don’t notice.

What is inflation?

The long term rise in prices of goods and services caused by the devaluation of the currency is termed as inflation.

The economists say that people should be more concerned with deflation instead of worrying about inflation. Because huge benefits are happening from inflation.

How can inflation benefit?

It surprises most people as to how inflation can be a good aspect. Economists say a healthy rate of inflation increase wages and profitability and keeps the capital flow in the economy.

The following are the benefits of inflation:

  1. Keep deflation in check
  2. Increase production
  3. Encourage borrowing and lending
  4. Fight unemployment
  5. Boost economic growth
  6. Increase demand in the short term
  7. Encourage spending

Why inflation is good for you, want to know?

 

  1. Keep deflation in check

To keep balance in the economy, both inflation and deflation should be controlled when required. Deflation happens when prices fall. It becomes difficult to spot as all the prices don’t go down uniformly. Even during deflation, some areas ca still have inflation.

Example: in 2014 there was deflation in oil and gas prices. Even though housing prices continued to rise slowly.

why inflation is good
why inflation is good

When prices fall and are expected to fall in future many individuals and business hold on money rather than investing and spending. This leads to reduce demand and lower production and sell inventories at lower prices.

Unemployment increases and business profits go down. This is a scary situation so to keep all this in balance certain rates of inflation is required to keep balance in the economy.

  1. Increase production

When prices are going up people tend to buy now rather than pay double later. In this case the demand in the economy increases and sale increases which intern increases the production of products. This helps in the growing economy.

why inflation is good
why inflation is good

Example: if the housing company is doing well and the demand is high. The company can charge higher prices. Inflation provides pricing power and increases profits. Which means profits and production are increasing at a higher rate than the increase in production costs.

  1. Encourage borrowing and lending

When a business or individual borrows money it has to pay back later. This way inflation helps the borrowers to pay back money that worth less than when it was originally borrowed. This encourages borrowing and lending among people.

why inflation is good
why inflation is good

Inflation can also benefit lenders. When prices are high mean that more people want credit to buy especially if their wages have not increased – new customers for the lenders. On top of this, the higher prices of those items earn the lender more interest.

Example: people are spending more money to fulfill their needs. This benefits lender because people need more time to pay their debts and lender collect interest for a long time.

  1. Fight unemployment

Inflation and unemployment have a relationship of inverse correlation. As unemployment falls, employers are forced to pay more for workers with the skills they need.

why inflation is good
why inflation is good

As wages rise, so does consumers’ spending power, leading the economy to heat up and spur inflation.

  1. Boost economic growth

Inflation discourages savings which encourage individuals to invest and spend. This, in turn, leads to economic growth. In previous points, we learned how inflation reduces unemployment, encouraged borrowing and lending.

why inflation is good
why inflation is good

The demand increases and production also increase which leads to more sale and more profits. This leads to economic growth.

  1. Increase demand in the short term

When prices of goods increase people tend to buy them at current prices expecting the prices to rise in the future. In this way, the demand for the product in the economy increases.

why inflation is good
why inflation is good

In each business and individual, the demand increases depending upon the situation.

  1. Encourage spending

As the prices are increasing during inflation people start spending before the cash lose their value. For individuals, it is to stuff freezers, fill gas tanks, stock up required items.

Businesses make capital investments, many investors buy gold and other valuable metals. This way inflation encourages spending and adds up to economic growth.

Inflation has both advantages and disadvantages. And here we saw how inflation can be beneficial too.

Both inflation and deflation are necessary at certain rates to keep balance in the economy.

 

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