Inflation is when the prices of goods and services increase, reducing the purchasing power of commodities.
There are various types, causes, and effects of inflation, but we will discuss a few. Before we look at the effects of inflations, let’s look at the types of inflation.
Types of Inflation
Cost-push in inflation.
This happens when the prices of raw materials used to produce goods increase and cause an increase in the production cost. When the cost of production increases, producers tend to increase the prices of their products to make a profit. Producers increase the prices of commodities when there is an increase in the prices of raw materials regardless of the market demand.
Demand-pull inflation.
This is when the commodities produced are insufficient to meet the demand, causing prices to increase. Producers tend to hike the prices of commodities when the demand is high, and the commodities are scarce.
Built-in inflation.
This happens when the prices of commodities increase, making the cost of living expensive. Due to this, employees may demand an increase in their wages or salary to keep up with the high cost of living. If a business raises its employees’ salaries, it tries to maintain its profit margins by increasing the prices of commodities.
The rise in inflation has adverse effects on individuals and the nation at large in the following ways;
1) Inflation reduces the purchasing power of products due to an increase in prices
2) Rise in inflation encourages individuals to consume more than they save. Individuals tend to stock more products when there is a rise in inflation because of the fear that inflation will keep rising. This makes individuals spend more than they usually do in a normal economy.
3) Inflation increases the cost of living due to the increase in the prices of commodities.
4) Rise in Inflation causes a decrease in monetary value.
As inflation affects individuals negatively, it also has a few positive effects on individuals and producers, which may include;
1) Producers tend to get high-profit rates when there is a rise in inflation. This happens only in the cases of demand-pull inflation.
2) Investors tend to get high investment returns. This happens when they sell them at higher prices.
3) There will be an increase in production. When commodities demand is high, producers tend to produce more products to meet the high demand.
Since inflation affects the normal lifestyle of individuals, we must prepare well to survive during times of inflation.
One can deal with inflation in the following ways.
1) An individual can survive high inflation by making a budget and sticking to it.
2) Individuals can also survive during high times of inflation by reducing their expenses. This can be achieved when one only decides to spend on the basics and avoid luxuries.
4) The government can also help manage high inflation rates by using wage and price controls.
Having seen the effects of inflation, an individual can survive during the high times of inflation by choosing to spend only on basic needs and not luxuries and other different ways mentioned above. Inflation cannot be avoided entirely but can be managed.
