Is Inflation Good or Bad

What is Inflation?

Inflation is a topic used in economics and other related fields. It describes the decline of the purchasing power of a given currency over time. Practically, most currencies around the world suffer inflation after a specific period of time. However, some currencies may also experience an increase in purchasing power, known as deflation. It is possible to quantify inflation. The process begins with the selection of a basket of goods and services. After that, the process involves calculating the rate at which the purchasing power of the currency has declined using the given basket as a base. This calculation allows users to obtain an inflation index, which provides a basis to calculate the fluctuation in purchasing power over time. While, seemingly, inflation is a bad thing, there is still debate around the topic. Sometimes, inflation can even be good for the economy of a country.

How is Inflation a good thing?

Inflation can be good as it allows businesses to increase their profits over time. Similarly, it helps them prevent their consumers from waiting for lower prices before making a purchase. In fact, some experts believe that the primary function of inflation is to prevent the deflation of a given currency. Besides these, there are also several other benefits of inflation. In theory, inflation can help increase production when an economy is not running at capacity. When consumers pay more for the products that cost less before, it means they are spending more. In economics, more spending results in an increase in demand for products or services. Consequently, the increased demand for goods and services boost production to meet that demand. Similarly, theoretically, deflation can deteriorate a given economy. When customers expect their purchasing power to increase or the currency to deflate, they hold off on purchases to wait for better prices. It causes the opposite reaction caused by inflation, as the lower spending translates into lower demand and, subsequently, lower production. Inflation can also be useful for businesses. Any company that makes credit purchases pays less for the goods due to inflation. This concept relates to the time value of money. When a business makes a credit purchase, the products or services may be worth higher. Subsequently, due to inflation, it pays the same amount of money but with lower purchasing power.

How can Inflation affect investments?

While inflation may be good for the economy, it can also pose a threat to investors. It is usually because it decreases investor’s investment returns. While investing, most investors aim to increase their long-term purchasing power. However, due to inflation, this goal may be at risk because they need to make investments that can keep up with inflation and increase the investors’ purchasing power at the same time. When investors don’t consider the effect of inflation on their portfolios, it may harm them. Especially for investors that have fixed-income securities, inflation can cause a negative impact. It is because these fixed-income securities come with a fixed interest rate. If the interest rate falls below the inflation rate, it can result in negative returns.

Conclusion

Inflation is a concept that refers to the decrease in the purchasing power of a currency. For the economy, inflation is a good thing as it increases demand and supply. However, for investors, inflation may be problematic. Therefore, investors need to keep an eye on their portfolio to protect against its negative effects.

Further questions

What's your question? Ask it in the discussion forum

Have an answer to the questions below? Post it here or in the forum

Add your business to our business directory https://harbourfronts.com/directory/ Add your business. Also check out other businesses in the directory
LATEST NEWSMinovia Therapeutics to Present at Biotech Showcase on Tuesday, January 10, 2023
Minovia Therapeutics to Present at Biotech Showcase on Tuesday, January 10, 2023

Company to be in San Francisco January 8-12, 2023, during 41st Annual J.P. Morgan Health Care Conference WOBURN, Mass. and HAIFA, Israel, Jan. 03, 2023 (GLOBE NEWSWIRE) — Minovia Therapeutics, a clinical-stage global biotechnology company, today announced that the Company will be presenting at the Biotech…

More news
LATEST NEWSGloom and boom: Fund managers’ top picks for 2023
Gloom and boom: Fund managers’ top picks for 2023

King Dollar’s reign (definitely) coming to an end, bonds bouncing and emerging markets rising again are just some of the trades international money managers are betting on in 2023. Sky-high inflation and the global gut-punch of nearly 300 central bank interest rate hikes over the…

More news
LATEST NEWSNew Prospective Study Evaluates the Accuracy of Masimo SpHb® Noninvasive and Continuous Hemoglobin Monitoring During Elective Cesarean Section
New Prospective Study Evaluates the Accuracy of Masimo SpHb® Noninvasive and Continuous Hemoglobin Monitoring During Elective Cesarean Section

Masimo SpHb Demonstrated “Clinically Acceptable Accuracy” of Hemoglobin Measurement, Even at Low Hemoglobin Levels NEUCHATEL, Switzerland — Masimo (NASDAQ: MASI) today announced the findings of a prospective study published in the Egyptian Journal of Anesthesia in which Dr. Mohamed Ibrahim Beleta and colleagues at Cairo…

More news
LATEST NEWSGensource Potash Announces First Closing of Non-Brokered Private Placement and TVR
Gensource Potash Announces First Closing of Non-Brokered Private Placement and TVR

NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE UNITED STATES SASKATOON, Saskatchewan & LONDON — Gensource Potash Corporation (“Gensource” or the “Company”) (AIM/TSXV: GSP), a fertilizer development company focused on sustainable potash production, today announced that on December 30, 2022, it…

More news
LATEST NEWSSouth Korea fines Tesla $2.2 million for exaggerating driving range of EVs
South Korea fines Tesla $2.2 million for exaggerating driving range of EVs
More news

No questions found.




Ask a Question

Attach YouTube/Vimeo clip putting the URL in brackets: [https://youtu.be/Zkdf3kaso]


Tags:

Leave a Reply