Inflation & Employment

Previously, I described inflation in relation to a real life example of Zimbabwe, this time I am discussing inflation in general.

Governments believe that inflation is a priority for the following reasons:- it can cause inefficiencies in the market, leading to economic problems as well as business and consumer protests.
- it makes it difficult to plan ahead, as the value of your money can lower substancially unpredictibly, and lead to problems for people who want to save their money.
- it can cause problems with company productivity as they work to decrease the costs of production for their products.
- it can discourage future investments and saving, leading to less money in the banks and an increase in demand.
- there is less purchasing power for the country in international trade.
- less price stability.

The two main causes of inflation are:
- if a government prints an excess of money in order to meet the demand of the economy, it can cause the value of the currency to decrease, leading to inflation.
- Also, if there is a rise in production costs, it can cause an increase in prices of products, leading to inflation.

Inflation is Bad for Business Because:
- it raises the costs of production, meaning that if the company does not change it's prices, it will lead to a lesser and sometimes negative profit.
- it makes the companies lose capital, as well as causes worker unrest, as the rise of inflation causes the cost of living to be higher, making them demand higher wages, leading to another increase in the costs of production.

Inflation is Bad for Employees Because:
- inflation means that the costs of living will rise, but the wages will not for some time, eventually that means that they will lose a lot of money, making it harder for them to support themselves and their families.
- it can also be the case that this will increase the spending, as their money is not worth much sitting in a bank during times of inflation, which will lead to access buying and a loss of revenue, which will be a problem if coupled with the first issue.

Inflation is Bad for Customers Because:
- prices are much higher, meaning they must spend more, but the lowering value of their money, means it is best spent instead of invested or saved so they lose even mor money.
- the prices are constantly varying and can lead to inconsistancies for the buyers, who do not expect the sudden changes in pricing.

The Government Can Control Inflation By:
- higher interest rates can control inflation, by balancing the rate of the decline of money in banks, and encouraging saving over spending.
- direct wage controls can control inflation by setting limits on the growth of wages and can therefore reduce cost inflation.