Why is it important that we know the current and expected inflation rates for our own...

Why is it important that we know the current and expected inflation rates for our own finances? Provide specific examples.

Expert Solution

It is of great importance to know the current and expected inflation rates for our own finances. Weather being a small company or a large multinational company or even individual everyone needs to know the situation of inflation rates which is present and is expected in the near future to make financial decisions of their own. It is always said better to be prepared and proactive then reactive for a better decision making. Hence knowing the future inflation rates always helps to make a good decision regarding our finances.

Inflation rate it is the rate of increase in prices for the goods and services and is one of the most important influences in economy. It is also governments one of the primary fiscal goals to keep inflation at a controlled level. It helps in making decisions like loan taking, making Investments, purchasing and investing capital and many other reasons.

When a company or individual knows the current and expected inflation rate they make themselves aware of the benefit arising in the near future or the potential losses that could cause if they invest their finances in the near future. Hence both current and the expected inflation rate are important to understand and make a comparative decision.

For example: A company understands that inflation rate today is less than what is going to be in the near future. A company knows it wants some big machines to be invested as fixed furnitures for upgrading in the industry. Hence because company knows that inflation rate is going to be higher in the near future it will make decision to buy the Machines now rather than to wait. Because in the near future when inflation rate will be higher the Machines costs will go high and it will cause loss to the company. Hence knowing and understanding inflation rates would help a company in making better decision making to potentially decrease the losses and increase the internal profit.

Rahul Sunny answered 2 years ago

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