"Inflation is bringing us true democracy. For the first time in history, luxuries and necessities are selling at the same price." -- Robert Orben.
Inflation hits you badly as prices are rising. You end up spending more money for things that you could buy for les earlier.
What you could buy for Rs 100, a few years ago, would now cost you nearly double. As a result, your savings will come down. As prices rise, the purchasing power of money goes down too. So to fight inflation, you must always invest money wisely.
When you invest money, you must be careful about the return on your investment. The return on your investment must always be higher than the rate of inflation.
You may have got a good pay hike, but were you able to save the extra cash? Well, if inflation is high, you end up spending more money so in effect the hike makes little sense. A high inflation rate negates the salary hike you have received.
Inflation reduces the purchasing power of your money. It hits retired folk and people with fixed incomes very badly. Inflation destablises the economy as consumers and investors change their spending habits. People tend to spend less when prices are up as a result production slows down resulting in job losses as well. Inflation also affects the distribution of income. Lenders and borrowers are also hit.
Experts say a little inflation is good for the economy. It keeps the economy active as the prices of goods keep changing. In the short term, it encourages spending and borrowing and also encourages long term investments.
Image: An Indian investor watches the share prices on a stock ticker outside the Bombay Stock Exchange (BSE) building in Mumbai. | Photograph: Pal Pillai/AFP/Getty Images
Also read: All about the 6th Pay Commission report
Advertisement
