Business and the effects it faces due to inflation

Just like weight gain or aging, inflation’s effects are profound and gradual. It is by the passage of time inflation creeps on us, as all the people will be still continuing with their normal spending. However, the impact of inflation would be huge. It not only affects a person’s salaries and the purchasing cost of a home; it hits a business or an individual from every angle. Transportation price will increase, the price of the food goes up and cost of many other services and goods shoots up. Let us understand more about inflation.

Inflation

As the currency gets devalued, the price of services and goods rise up in long-term, this is called as inflation. It happens when the business or the individual’s earnings does not increase along with the increase in the price of items. Hence, the purchasing power will get reduced and it will, in turn, leads to a stagnant economy.

How the inflation will be affecting the business

  • Investment- All the business organization will get deeply affected by inflation. To upgrade any of their equipment or machinery will seem impossible. The office would be needing a new desktop or a makeover, but it won’t be possible during this time. The inflation not only reduces profit but also makes normal everyday cost also expensive. High inflation prevents investment. The confidence level of the investor in the economy is reduced. This impacts the growth of the organizations.
  • Foreign exchange-When the inflation occurs, the value of the currency drops down and the other country’s currency will be still constant. When the business is procuring raw materials from other countries, they will still need to pay the same amount but will be only receiving a lesser quantity of goods than earlier days. This will result in shooting up the raw material costs. The same thing happens when the business imports the goods. The price of the goods will be high because of inflation and other countries will either stop buying the product or buy less from them. It affects the economy badly.
  • Wages of employees– Wages are the most important cost of any business organization. Employees will be suffering the most because of the inflation. The employees usually are due for a hike in salary once a year. If the country is hit by inflation, the current salary would be not sufficient to maintain the same lifestyle as earlier. Over time, people will be facing a financial struggle. The business organization will usually increase the wages at a lower rate when compared to inflation’s rate.

 

 

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