Common Effects of Inflation on Your Purchasing Power

Have you visited a grocery store and wonder why your monthly shopping bill increased drastically? This might be due to inflation. 

What is Inflation? 

Inflation is the continuous decline of purchasing power of a currency over a period. It is usually reflected in the steady increase in prices of goods and services. In some cases, inflation might be a sign of a booming economy, while it could be that of a struggling economy in other cases. We will be examining the common effects of inflation in this piece. 

Reduces purchasing power

The most common effect of inflation is the erosion of purchasing power. With the growing prices of consumer goods, people are likely to spend more while earning less. This can cause a significant depreciation in consumer spending power. 

Increases the urge to spend more

As people crave to cater for their needs, they usually spend more money. This can lead to inflation which might cause a disastrous feedback loop. People will also look to spend more in a bid to avoid holding the weaker currency for too long. 

Change in Labour demand

Companies might also be caught in the inflation loop due to the increase in overhead costs. Some might decide to downside staff strength to remain in business. However, people might start their ventures, driving economic diversification through an increase in small and medium businesses.

How to hedge against Inflation  

During an inflation, people tend to avoid holding the weaker currency for too long. Climbing prices of goods may be  bad news for many consumers. Firstly, you can stock up on items that won't lose value over time. To avoid overspending, you may consider investing the currency to preserve its value over a period. 

Over the long term, investing could be an option to maintain the value of your money. Say you decide to save the money or keep the physical cash; the value might still depreciate. 

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