Question

Provide three reasons with brief explanations as to why the inflation rate is such an important statistic in our economy.

Answer 1

The inflation rate is an important statistic and has key consequences for an economy. It is used in several ways by individuals, government, businesses and academics. Inflation statistics impact all individuals in some way as they affect tax allowances, benefits, interest rates, savings rates, pensions, maintenance contracts and many other payments. The economy with persistently low inflation, make an attractive place for investors because they offer economic stability which encourages the firm

Three reasons of importance of inflation rate as statistic in our economy are as:

--The rate inflation creates determination about future prices and costs; this tends to either increase or reduce investment and lead to affect the demand for the goods. Thus plays a vital role.

--The rate of inflation is one of the main issues that influence fiscal and monetary policies all over the world. The contractionary monetary policy is the opposite of expansionary policy and a central bank will put efforts to slow down the money supply to curb inflation. Moreover when a government thinks there are chances of inflation so, the government may reduce spending.

--The inflation rate is likely to cause an appreciation or depreciation on the exchange rate, which impacts the imports and exports of the nation. Moreover impact on the saving, investment and wages that affects the competitiveness of the country.