Inflation: how does it affect you?

Source:http://www.inflationdata.com/inflation/Inflation_Articles/InflationandME.asp


Summary

Basically, in this article it talks about how people are affected by inflation, in terms of how people who have fixed income suffer due to the fact of the prices of goods being increased while their income stays the same. This then comes to explain the question on the economy's conditions, of how it would deal with less consumer purchases of goods in order to become stable. The advantages of inflation is beneficial to some peoples financial situation, as it talks about how people who have dept would benefit to inflation as way of getting out of their dept by having the amount of money being borrowed decrease in value as it would be easier to pay off.





Connection

In chapter 5, Inflation is defined as an increase in the general level of retail prices in a country each month. With prices of goods being fluctuated, it affects the econonomy and as well as people's spending habits . This being said, the rise of an inflation can have many downturns such as retail prices climbing higher and higher until workers demand for higer wages will increase in order to keep up withe the cost of living. Inflation will also affect people who save money,as it leads to a rise in the general price level so that money loses its value. When inflation is high, people may lose confidence in money as the real value of savings is severely reduced. Savers will lose out if nominal interest rates are lower than inflation leading to negative real interest rates.


Reflection

I think that inflation is a serious problem to the economy but it can be prevented at the same time.When people are able to make accurate predictions of inflation, they can take steps to protect themselves from its effects. For example, trade unions may exercise their collective bargaining power to negotiate with employers for increases in money wages so as to protect the real wages of union members. Households may also be able to switch savings into deposit accounts offering a higher nominal rate of interest or into other financial assets such as housing or equities where capital gains over a period of time might outstrip general price inflation. In this way, people can help to protect the real value of their financial wealth.