How does inflation affect purchasing power?

Answer 1

People will not want to Spend money. They will buy items which they need rather than get items or products which are not important. They will focus on getting products they need rather than buy items they dont need because prices are increasing they dont have money to spend on other things.

Answer 2

Inflation is the overall increase in cost of products and services. Increase in taxes and fees leads to inflation. Inflation also generally causes due to scarcity. When the cost of business increases, the prices of the products increases and this abrupt increase, the income rate supposedly goes down. These things forces the employees to search better paying jobs or work relentlessly hoping their employer will give them a raise. Similar is the case, when the personal income tax, property tax, sales tax, auto registration fees increase then either the employee has to live on less or ask the boss for a hike.

The ever increasing inflation has forced the common man to borrow money from banks and other financial institutions. The consequences, of course people have to stand with indefinite debts or either have to cut down on their lifestyle or beg for hike in compliance with inflation to assist them move at the forefront.

Although common man is fighting this never-stopping price rise on Delhi's streets, whereas our politicians are finding ways to cope with the same issues in AC and other luxuries. Government is busy solving internal conflicts by supporting other party. And the question that arises here is who is thinking about the problems faced by common man.

Finance ministry hopes that inflation will come down till years end, but the issue that rises here is, Is government taking the "inflation" issue only on the political lines???? Inflation in America has been consistent apart from the year 1970, when an unexpected percentage rise was encountered. However, the American govt. managed to deal with the issue at once.
The middle class requires a lot of financial planning as well as retirement planning that usually everyone forgets. Under all these circumstances, the survival of common man is becoming tougher and tougher. With so much to lose, nobody is expected to gain, and a much serious thought is expected by the govt. to meet the current obligations.

Answer 3

If you make 25,000 dollars a year and you spend 24,000 on housing, food, medical, clothes, gas and all other things necessary then you can put away 1,000 dollars to save. When inflation goes up and now your rent has increased and so has everything that you normally spend just to live, it eats away at the 1,000 that you used to be able to save. If your expenses go up 1,001 dollars and you don't get a cost of living raise to keep up with inflation, then you will actually lose money that year.

Answer 4

It reduces the purchasing power of money.

For example, a movie ticket that cost 25 cents 50 years ago might cost $9 today. That quarter no longer has the same purchasing power that it had 50 years ago.

Answer 5

for a lay-men to understand

"inflation" means increase in the price of the commodity and when the income is fixed therefore an individual spends more from his pocket for the same amount of commodity. So inflation affects the saving....

During inflation bank increases rate of interest to attract funds for investment but the individual or who is saving saves less therefore no increase in the absolute amount. but this decrease the effect of inflation but does not put an end to inflation.

For example:- an individual used to save 1 Rs for 1% interest but after inflation he is able to save only 0.50 Rs and bank increases the interest to 2% then also he output is the same..

therefore to decrease the effect of the inflation the bank increases the interest because more saving is directly proportional to increase in investment from a nations point of view.

and the investment is done if the rate of return is positive. National income = expenditure + saving and saving = investment because only those funds can be invested which is available. inflation effect when the nation is more dependent on the rest of the world. but if the nation is self sufficient then no need to fear as India and china was affected less in 2008 but after that india china helped the effected nation to come-up at the time of difficulty and as it may be see that now india and china is also facing a tough time and if the scenario is repeat than india and china can also be affected to a larger extend.

disinflation and deflation this two terms are not same as deflation is opposite of inflation and disinflation is when the effect of inflation is in the process to go down. inflation_______disinflation________deflation.

Answer 6

Inflation is essentially a tax on the value of currency. It errodes the value of an individual unit of currency through creating a greater amount of currency in total. If there are only ten dollars in the world, and you have one of them, then you have something rare and very valuable. If there are ten trillion dollars in the world and you have one of them, then you have something extremely common and virtually worthless. So, as the the inflation rate rises, savings that have been accumulated by investors and private individuals disappear in terms of their value. One day your million dollars buys a house, a boat, and a great vacation. Then inflation sets in, and maybe you can only buy the house because even as prices rise the nominal quantity of your savings remains the same. When inflation sets in, people forgo saving money and instead purchase real goods. So, initially, consumer spending increases. However, as time continues and inflation continues to build, consumer spending will crash because of the job killing effect attached to inflation. As inflation increases, the value of investments decreases and so businesses who hire are left with vastly diminished resources and either cease hiring or opt to release employees. With no income, the unemployed individuals are forced to spend less which contributes to a lower overall spending pattern.

Answer 7

It decreases the purchasing power of people. It means that it will take you more money to buy the same amount of goods.