Impacts: Inflation and inflationary growth.

Hi guys! We are back again with a new post on the impacts of inflation and inflationary growth. There are both positive impacts and negative impacts to inflation and inflationary growth. Most of you consumers tend to complain about the prices of goods increasing, but do you know that mild inflation is a sign of a healthy economy, an economy where everybody benefits, even you, the consumers!

  

Moderate inflation is a natural indicator of healthy and positive economic activity as it instills confidence in consumers and investors towards the country’s economy, effectively proving that there is still space for growth in the economy. Its is extremely important for us, Singapore, to have moderate inflation as we depend greatly on foreign investment for economic growth. With moderate inflation, investors would know that the market is stable in Singapore and would not crash unexpectedly resulting in huge losses, hence they will be more willing to invest in our country, boosting our economic growth!

Furthermore, domestic consumption encouraged as people would be more confident to spend, knowing that the prices of their houses, cars, etc. would not devalue. With more monetary flow injected into the economy,aggregate expenditure/demand is kept positive, resulting in good economic growth, benefiting the whole country!

 However, there are the negative aspects of inflation that we all do not like!  

The value of money falls as the price level increases. Savings that you citizens all have will decline as a result of inflation! Imagine how all ur savings in your bank which could buy a house became so worthless over a course of 2 years such that he could only buy a loaf of bread with that same amount due to hyper inflation. This was exactly the case for Germany in 1921-1923, where money was so worthless that people burrned money as a form of fuel. Though it happened a long time ago, the possibility of it happening again is highly possible. 

Hyperinflation in Zimbabwe began shortly after destruction of productive

capacity in Zimbabwe’s civil war and confiscation of private farms. Zimbabwe’s

peak month of inflation is estimated at 6.5 sextillion percent in mid-November 2008.

In 2009, Zimbabwe abandoned its currency. As of 2013, Zimbabwe still has no

                              national currency; currencies from other countries are used. -Wikipedia

3 eggs for one hundred billion dollars.

We definitely wouldn't want this to happen in Singapore.

High rates of  inflation could also mean higher rates of interest, which makes borrowing money from banks expensive. This will result in you, consumers, to have difficulty buying that condominium you have been eyeing for years as the cost of borrowing is too high.

Persistent inflation could lead to uncertainty as businesses are unsure on whether to invest or not, which will results in falls in the level of investment. Based on the formula of aggregate demand, (C+I+G+X-M), a decrease in investment would mean lower economic growth, something you consumers would not want in our economy!

With this, we have come to the end of the post on impacts of inflation and inflationary growth! The next post will tell you of the possible solutions to inflation and inflationary growth!

Comments? Questions? Ask them below and we will get back to you as soon as possible!