The Effects of Economic Inflation on The Consumer

The Effects of Economic Inflation on The Consumer

Inflation is the rise in the cost of goods and services over time on a wide range of commodities that affect many areas of the economy, and economic inflation has many effects on the consumer, including:

Decreased purchasing power

Purchasing power decreases when price inflation increases. When purchasing the same items, the consumer will have to pay an amount greater than what he paid in the past, and those most affected by inflation are those with fixed incomes that are not adjusted annually, or people who save money and thus the purchasing power will be affected for them.]

Spending increase

Because of the fear of a decrease in the value of money, many consumers and companies try to spend money before inflation occurs, as money is spent on items that do not lose value, and this increase in spending positively affects the economy.

High interest rate

Increased spending by consumers and companies leads to the entry of more money into the money supply, which contributes to higher inflation, and to reduce this, the interest rate is raised, which in turn makes borrowing money more expensive, and thus higher payment rates, and thus pushes consumers and companies to re-evaluate obtaining loans. to make large purchases.

The money that will remain in bank accounts will rise, which means less spending and less money in the money supply, thus slowing down the inflation process.

The significant impact on low-income people

Low-income people usually tend to spend a higher percentage of their income on necessities and basics than those with high incomes, and therefore the harm to them is more when price inflation occurs.

Consumers resort to alternative payment methods

Consumers buy many products whose prices have increased due to inflation through installments, or the so-called buy now and pay later, and it is one of the most common methods after the payment process via credit cards.

The causes of economic inflation

Economic inflation has many causes, including:

Inflation occurs when the demand for certain goods and services is greater than the ability of the economy to meet these demands, and thus upward pressure on prices, which leads to inflation.

High costs

An increase in the prices of some commodities due to the increase and rise in the cost of wages and materials, and thus passing these costs on to consumers through an increase in the prices of commodities. An example of this is the increase in the price of wood, which is a good entry point for homes, which leads to an increase in housing prices and thus the occurrence of inflation.

Increase the money supply

It is the total amount of money in circulation, which includes money, coins, balances, and bank accounts. If the money supply increases faster than the rate of production, this leads to inflation, especially inflation of demand; Because there will be a lot of money and very few products.

Currency devaluation

Devaluation of the currency in some countries through a downward adjustment of its exchange rate, which makes the country’s exports less expensive and thus leads to foreign countries buying products whose value has been devalued, and also causes the cost of foreign products to the losing country to become more expensive and thus the country’s citizens are willing to buy the products domestic over foreign imports.