Effects of Inflation

Inflation refers to rise in price of goods and services as compared to previous year; in simple words it is a situation where too much money chases too few goods. Inflation can be cost push inflation or demand push inflation. Given below are some of the effects which inflation has on individuals or country as a whole –

1. Since inflation erodes the value of money, due to inflation people will save less as during inflation people who save money are affected the most.

2. It leads to hoarding of goods as people get rid of cash before it is devalued, and start hoarding food and other commodities creating shortages and which in turn increases inflation even more.

3. People who have fixed income like retired people and people whose source of income is rent or other such source will be hurt, because while inflation increases, their income does not increase.

4. As inflation rises government tends to resort to tight monetary and fiscal policy in order to control the inflation which results in lower economic growth and in turns result in high levels of unemployment.

5. It benefits borrowers of money as people who borrow money from creditors will effectively pay lower when they return the money to their creditors as money will lose value due to inflation.

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