Do Any Groups of People Gain and Lose from Inflation?
ECONIMIC POLICY & THE GLOBAL ENVIRONMENT
Do any groups of people gain and lose from inflation?
What is inflation?
Inflation is defined as a rise in the price of goods and services in an economy, in other words also represents a decline in the value of your current money.(1) It can be measure using the below formula:
Inflation Rate = { x 100 }
CPI (Consumer Price Index) is a measure of the average of prices paid by the urban consumers for a fixed basket of consumer goods and services and is calculated monthly by the Bureau of Labor Statistics (BLS) ( Parkin 8th Edition, Economics, pp. 514). A list of annual inflation rate at Statistics Singapore website shows an increase of inflation rate from 2005 to 2007.(2)
Inflation is generally caused by two theories, Demand Pull and Cost-Push Inflation.
Demand Pull inflation is a result of higher consumer demand for too few goods. It is common in expanding economy where government increase spending and employed workers have more spending power. As demand rise to purchase the same amount of goods, prices increase resulting in inflation.
Cost-Push Inflation is cause by higher production cost resulting in inflation on the price for products and services. It may be due to higher work wages, increase price for raw materials like oil (recent oil surge) (3) as well as corps like rice and flour.
Impact of Inflation
People mostly see inflation as things getting more expensive thus a higher standard of living, however inflation affects people differently.
The Positive Impact
The group of people gaining from inflation will be middle or upper class person with a huge mortgage and a person who hold property. People who took up a big mortgage will have a longer ‘debt’ allowing inflations to increase the value of their property but in the same time paying a fixed amount of installment which value dropped due to inflation. In another words, they are
Do any groups of people gain and lose from inflation?
What is inflation?
Inflation is defined as a rise in the price of goods and services in an economy, in other words also represents a decline in the value of your current money.(1) It can be measure using the below formula:
Inflation Rate = { x 100 }
CPI (Consumer Price Index) is a measure of the average of prices paid by the urban consumers for a fixed basket of consumer goods and services and is calculated monthly by the Bureau of Labor Statistics (BLS) ( Parkin 8th Edition, Economics, pp. 514). A list of annual inflation rate at Statistics Singapore website shows an increase of inflation rate from 2005 to 2007.(2)
Inflation is generally caused by two theories, Demand Pull and Cost-Push Inflation.
Demand Pull inflation is a result of higher consumer demand for too few goods. It is common in expanding economy where government increase spending and employed workers have more spending power. As demand rise to purchase the same amount of goods, prices increase resulting in inflation.
Cost-Push Inflation is cause by higher production cost resulting in inflation on the price for products and services. It may be due to higher work wages, increase price for raw materials like oil (recent oil surge) (3) as well as corps like rice and flour.
Impact of Inflation
People mostly see inflation as things getting more expensive thus a higher standard of living, however inflation affects people differently.
The Positive Impact
The group of people gaining from inflation will be middle or upper class person with a huge mortgage and a person who hold property. People who took up a big mortgage will have a longer ‘debt’ allowing inflations to increase the value of their property but in the same time paying a fixed amount of installment which value dropped due to inflation. In another words, they are
References: 11. J. Bradford DeLong (1998) The Philips Curve, J. Bradford DeLong’S Website Search, Created 3 Oct 1998 http://www.j-bradford-delong.net/multimedia/PCurve1.html [11 November 2008]