Inflation or the increase of price might turn into a flipping coin, but entirely could not be Yin and Yang. The negative and positive side is so obvious, to look over it depends on how severe the change could be. This article would talk further on Inflation’s effect, action, and control.
The simple scenario would be like this;
If you are a business owner, you have a product, or property, and stocked commodities. On the side of the business you want inflation to happen because the product would be more expensive. You will get more profit in this situation. When you sell at a higher rate the price of the asset also rises. Sometimes, investors would choose inflation-indexed bonds to profit from inflation. Inflation-indexed bonds are in the form of security guaranteeing higher return than the rate of inflation if it is for maturity.
But if you are a customer, or a buyer you won’t be as happy as that.
Buyers must adapt with higher prices in the market. Which means consumption would decrease and must earn more money. The other who does not like inflation is people holding assets in denominated currency such as cash or bonds. This is because it could erode their holdings’ real value. In this case, investors would seek protection for their portfolio against inflation, they must consider inflation-hedged asset classes in Real Estate Investment Trusts (REITs), or others in gold and commodity classes.
Although inflation could benefit one sector but not benefiting the other sector, both business and individuals expect returns better than inflation. Both businesses in risky projects and individuals in stock companies wish to get more return without disrupting the economy. So a balanced approach to inflation is highly desirable.
The high variable inflation rates impose major costs on the economy. Activities in buying, selling, and planning decisions would affect everyone in business, workers, and consumers. The most important part would be market uncertainty, it would be hard for everyone to decide what to do in the rate of future inflation. Instead of spending time on real economic fundamentals, they will keep guessing, researching, and estimating the economic behavior to face pricing levels.
