How Inflation Rate Affects the Economy

The economy of the country is pretty essential to both the government and the citizens. You must know that a good economy can do so much also to somehow alleviate the lives of the citizenry. This is why it is indeed important for the country to ensure that the economy runs as smoothly as it possibly can. In this manner the government will also be able to provide the basic services to its people. However, the economy can be very fragile and is also very vulnerable to changes. There are many factors affecting the growth of the economy. One of which is the inflation rate. But have you figured out how inflation rate affects the economy? Here are some of those which each and every one of us need to pay attention to:

  • It decreases people’s purchasing capacity – when prices of nearly all kinds of commodities are on the rise people will find it hard to purchase them. Even those who are employed will also find it harder to budget their earnings on spending their basic needs. When this happens, the economy will definitely be affecting based on the principle of the law on supply and demand. People should therefore have a real good purchasing power for the economy to flourish.
  • Lower business opportunities – if the prices of nearly all commodities are on the rise it will also decrease the business opportunities of a particular place or country. Because of the high prices some businesses will experience unfavorable sales thereby affecting their earnings too. When this happens a lot of businesses especially the small ones might be forced to tone down their business and might eventually up for closure.
  • Decreases borrowing activities – along with inflation rate comes higher interests in loans. This is why more borrowers will become apprehensive in borrowing money from banks for the higher interest they need to incur.