Question

• Why is inflation such a difficult problem in so many economies?

Do some research to find an industry or firm, either now or in the past, that was affected by inflation. In your initial post, write a brief synopsis of the situation and how they reacted to it.

Answer 1

Answer. Inflation occurs when there is a continuous increase in the general price level of goods and services in an economy over a period of time. Consequently, each unit of currency can buy fewer goods and services; In other words, inflation results in a decrease in the purchasing power per unit of money. The metrics of inflation is the inflation rate, measure of change in a general price index, usually the consumer price index annually.
Inflation impacts the economy in both positive and negative ways. However, High inflation rates is considered to create uncertainty and damages the economy of a country.

Repercussions of Inflation

Inflation has following repercussions:

1. Recalling history in a hurry, countries that have persistently higher inflation, have lower rates of investment and economic growth. Reason being, High inflation rates creates uncertainty and confusion in the investment climate.

2. Hyper-Inflation lowers foreign exchange earning. Higher inflation increases cost of production and reduces profit margin leading to a decrease in volume of exports. Consequently, there is a deterioration in the current account balance of payments.

3.  Hyper-inflation reduces the savings of the middle-classes who have hard-earned money. It also causes more trouble for people below poverty line.

4. Inflation hurts the old age people also as it reduces the real value of savings.

5. Costs of reducing inflation. During the time of high deflation, Government and the Central Bank tries to restore price stability, and adopts deflationary fiscal/monetary policy. However, The cost of reduced inflation is unemployment and recession.

Food Industry affected by hyperinflation in the year 2011

In 2011, there was hyperinflation in food industry in the United States. Consequently, Food Retail Rising food commodity prices were passed on from the wholesale food industry to retailers and finally to consumers, who had to bear the burden.
Kellogg, listed at the New York Stock Exchange, faced higher grain prices. Reacting to higher grain prices, the company raised its cereal prices by 3% to 4%. Simultaneously, Coffee prices also soared up. As a result, Starbucks increased prices of drinks. Sara Lee, which sells Senseo coffee, faced a similar situation. Higher corn prices soared the costs of many other foods, including meat.