Inflation, especially high inflation, increases profits as well as the cost of doing business and implies higher demand for products at higher prices and a tight employment market with rising wages. Investopedia reports that inflation, "Is not intrinsically good or bad."Know More
Inflation is present when prices are higher than they were previously. As of 2014, The Board of Governors of the Federal Reserve System reports that an inflation rate of 2 percent is consistent with the Federal Reserve's mandate for maximum employment and stable profitability. This small amount of inflation ensures that the economy is able to grow and that business are profitable enough to maintain and gradually expand workforces.
Inflation above 2 percent can cause an, "inflationary spiral." In this situation, prices are pushed higher by rising consumer demand. Businesses are profitable and hire aggressively to match production with demand. Tight labour markets lead to wage increases. This leads to a higher cost of living with higher rents, home values, consumer prices and prices of raw materials. This represents further increased demand for products and services, which also increases prices, further increasing company profits. These increased company profits again leads to more hiring, which continues to put inflationary pressure on wages and prices. The Business Directory describes this as, "Reinforcing feedback of a vicious circle"Learn more about Economics
Inflation can be a problem when it is unexpected or very high, which can result in economic instability and people being afraid to spend money, which hinders economic growth. Furthermore, inflation can make products and services unaffordable to those on fixed-income. It can also cause creditors to lose money and create a negative impact on a country's trade.Full Answer >
Inflation can rise as a result of a number of factors, such as an excessive monetary supply — which devalues currency, causing a rise in prices — and excessive pressure on supply and demand, usually caused by natural disasters, for example. Inflation is often manageable to some degree by implementing policy changes, or using banks to enforce an exchange rate, although these measures are not always successful.Full Answer >
Interest rates affect a business by forcing an alteration in its financing and its accounts receivables strategies, according to Forbes. When interest rates rise, credit becomes more expensive. When rates fall, credit becomes easier for the business and its customers to obtain.Full Answer >
According to the International Monetary Fund, inflation is an important economic statistic because it affects the value of money and indicates the overall stability of a country's economy. Inflation is a gradual continuous increase in the price of goods and services. A stable yearly inflation amount is typically between two and four percent, reports Economics Help.Full Answer >