Every country is facing inflationary tendencies though the rate of inflation varies from country to country. The question to be addressed now is that is inflation atrocious for an economy or is it responsible for imposing an extra burden on household’s budgets.
A Different Stand for inflation
At first, it’s true to think that inflation causes various problems and is a major reason why people are not able to make much improvement in their lifestyle which they would have in the absence of any inflation. But now think it differently like what is the difference between a stagnant income and zero inflation and increase in both prices and inflation at the same rate.
Aren’t they the same, in both the cases your actual budget plan remains the same. It’s like one day you wake up and find some extra zeros in your income, savings as well as the price level.Does it make any difference on your well being it’s just like the entire monetary system is multiplied by say 10 or 100? So a reasonable rate of inflation does not affect your good being.
Why is Inflation a Concern?
The above reasoning does not mean that inflation has no issue at all.Yes, inflation causes problems for future planning like if the prices do not change one can get easily on fingers as to how much they should save for the future, but inflation becomes a barrier in this. Very high inflation is also a big problem and needs serious attention. But a nominal one is okay and can be ignored.
Inflation as a booster
Much to everyone’s amazement inflation is sometimes good as well like take the case if employers want to impose a wage cut (which may be due to various economic reasons) then inflation becomes a helping hand.
Suppose the pay rate of a person is increased by 2%, but the inflation rate is 5% the worker is getting a fall of 3% in his purchasing power but according to a general human behaviour, this is seen as a wage rise rather than a fall of purchasing power. So inflation also helps in bringing significant economic changes because a wage cut of 3% with zero inflation would not be acceptable due to human psychology.
Hence, inflation is mainly a monetary phenomenon which does not show a large impact on one’s life until the time it is at some nominal rate.