The inflation rate is increasing day by day and the main issue is that the market must survive with the same budget before and after the inflation, it is easy for big businesses to increase their budget but the rest of the market does need to shift or adjust. Inflation does impact purchasing power, but what do these terms mean whether it is inflation or purchasing power? How does inflation impact purchasing power?

Keep on reading the article to get the answers…

What is Inflation?

Inflation, simply to put this term in words; is a rise in price. To explain it, let me give you an easy example, the 100 pieces of the product price which used to cost ten thousand rupees now cost fifteen thousand rupees due to an increase in the price. Inflation is usually classified into three categories: Built-in inflation, demand-pull inflation, and cost-push inflation. Deflation is called negative inflation, as it occurs when the price of goods and services decreases. Whether it is inflation or deflation both cause an effect on the purchase power and debt value.

What is Purchasing power?

Purchasing power is termed as the value of a currency that is expressed in terms of the number of goods or services that can be bought by one unit of money in a given span of time. It is also known as ‘buying power’ in economic theory’s concept. Purchasing power impacts stock prices and the economic growth of the business.

How does inflation impact purchasing power?

Inflation worsens people’s capability to pay for goods and services, as the basic wages remain the same but the price of goods and services increase. For example, if a business earns 10k profit and invests 3k before and 5k after inflation, the investment rate will eventually increase. This will cause a decline in the profit rate and increase the investment rate. Purchasing power and investment can be easily destroyed if inflation keeps on rising. The money which will be invested will lose its worth after inflation. The cost of living and completing the necessities rise due to inflation as purchasing power fails to sustain. Interest rates, purchasing power, and inflation or deflation are indirectly linked to each other which affect each other with a slight change. Any business requires to purchase goods and services on a large scale and purchasing power is important for them to get the required profit. Every business financial department will be dealing with the currency regarding changes in the market.

Summing Up!!!

With the passing of time, the market has lost the value of the money due to inflation. 1 lakh rupee had much value 50 years back as compared to now. The money remains the same but the value is decreased. The price of goods and services has increased with the passing of time. For an individual Inflation can be positive or negative from the perspective of the person.

Hope so this article was beneficial and made you aware of inflation’s impact on purchasing power.

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