Inflation has affected the total demand for goods and services in the economy, thus exceeding the supply. Since there is less supply, the prices of these goods and services are rising, leading to a situation called inflation. This affects the rich and the poor globally posing a threat to the economy.
Looking at the global market history, you would understand that every country has undergone inflation at any one point of time. For instance, after the World War I, the German government lowered the value of their currency by printing massive amount of notes, and there was a rise in food prices.
The present downward trends in the world economies have resulted in credit crunch and financial crisis. When inflation affects economy, you would have to pay more to maintain the same level of living standards. This means that you would have to pay more for the same amount of goods and services you had used prior to inflation.
With one’s income increasing at a slower rate as inflation, the living standards will decline even if one is making more. Inflation does not affect everything equally. For example, gas prices can double while your home loses value.
There is a need for commodities trading to be regulated because “a demand for gas and food is inelastic” (Amadeo, n. p.). This means that people need to buy them, and cannot really cut back on demand when prices shoot up unlike prices on clothing. This makes financial planning more difficult since the value of money is decreasing with inflation.
This is affecting the pensioners more than the ones who are currently employed. For instance, in America people are being forced to retrench from their work places and sell their properties at a throw away prices and many go jobless since various companies cannot afford to employee them.
Inflation is affecting the economy, thereby retirement planning are not possible because the premium payment have to be high to keep the same quality of life. People tend to save less in the economy affected by inflation, because the price of services and goods are ever time higher, and there is nothing or very less leftover income available to save.
Worse still, in different westernized countries, people are starting to panic expecting inflation, therefore spending now rather than later in the future. That is because they believe things will only cost more later on.
This consumer spending will heats up the economy even more, leading to further inflation. Such a situation is known as spiraling inflation because it spirals out of control. If inflation spirals faster than the return on these goods, they become less valuable leading to people rushing to sell them, as a result depreciating their value further.
As their value becomes lower, the government is forced to offer higher interest rates to sell them all. Dollar plays a major role in the global market against other currencies. Economies are organized based on the value of currency, both within and outside of the country, therefore negotiating all financial interactions based on the worth of a dollar to another currency.
There are many negative things said about the economy and people should try not to panic and avoid being caught up in stress Somehow the change can be made without significant cost to or transformation of how we live. People need to recognize how to handle these financial challenges and turning them into opportunities for personal growth like learning new skills.
Positive thinking will also easier the pain, like shifting ones attention away from what one have lost to what one has. As an economist would say, that while there is a fall-off in growth and the standard of living we are experiencing, life would go on as before.
Works Cited
Amadeo, Kimberly. “Falling Oil Prices Curb Inflation Fears.” About.com Guide. 15 Jun. 2011. Web.
Dennis, Lupher. Making personal economic choices. New Jersey: Wiley & Sons, 2011.
Ray, William. Introduction to economics. New Jersey: Black well publishers, 2009.