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What is inflation and its various forms? Are there any professions which are not affected by inflation?

What is inflation and its various forms? Are there any professions which are not affected by inflation?

Inflation and its forms are given as under:-

(a)                 Monetary Inflation. More the money in circulation in the market more inflation would be fueled by it with the condition that goods and services remain constant.

 

(b)                Price Inflation. When there is overall increase in the prices of essential goods. Supply remaining static while demand becoming more due to factors other than economics.

 

(c)                 Deflation. When the prices of goods and services are lowered. This is sometimes not beneficial because the suppliers of goods and services are adversely effected – his financial assets do not increase in proportion to the assets used for producing his goods. Fact remains, for any finished goods or ensure production from his fields, to be marketably suitable; raw materials, manpower, water, fertilizers are the necessary inputs. For this, finance is required. The poor farmer has to meet the input expenditures either from his own paltry savings or get loans from the bank or any other sources. and thus create supply of those goods. If goods produced or supply from the fields are sold cheap they may face financial stringency and may not have the incentive to produce the goods more resulting in loss of revenue. Rather than becoming a financial asset (not yielding corresponding fillip to their profit) their produce becomes a financial liability. We have seen farmers throwing their entire potatoes because it was not beneficial for them to market them after spending money on cartage etc. This produces a situation of sufficiency in supply but less in deliverance to the producers. And if the producer has taken loan from the banks or any other agencies (as it happens so) then their future becomes bleak and sometimes they are constrained to commit suicides which we have witnessed in many states of India.

In both the cases the farmer is the sufferer. When yield is more but less profitable due to market factors than the input in the fields or when return or yield is less due to others factors (not in the control of the farmers) like rains etc.

(d)                Hyperinflation. When prices of essential goods shoot up and go out of control due to non-availability of essential goods in the market owing to less supply or may be due to hoarding by the unscrupulous profiteers in anticipation of the spiral in the prices in future. Sometimes when seasonal rains impact the particular crops, it will fuel inflationary spiral because of its less availability. This happened in the this month in India. More than 75,000 tons of dalls of various varieties were found to have been hoarded by some profiteers in different cities in raids conducted by the law enforcement agencies. Sometimes there is also a tacit understanding between the some businessmen to sell particular commodity at the rate agreed only and create an artificial scarcity. This is termed as cartel. This is resorted to by many of the businessmen in order to exploit the demand and supply mechanisms and earn windfall profit in festivals etc.

 

(e)                 Stagflation. It is the result of uncontrolled inflation, slow economic growth coupled with creation of less employment for the masses. In many countries of the world this has been happening. This results when demand is not in commensurate with the supply in the market.

 

When there is less or no propensity of people to purchase goods and services or when the circulation of currency is more than the goods and services required in the market. Inflation is due to the following:-

  1. Lack of propensity to purchase goods and services, means less money in the hands of people so as to buy goods and services.

  2. Demand is more than supply of goods and services. When there is scarcity of goods and services in the market meaning no additional to supply in the market to meet the shortfall.

  3. Due to hoarding of essential commodities. When unscrupulous elements /profiteers hoard the essential commodities and market them at the time of their convenience – on some festivals or any other appropriate time when they can garner more from the hoarded goods.

  4. Less or no Agricultural Production. Water is an essential factor for the crops of any variety to give adequate yield. Less rains means less water for the growth of the plants in the fields consequently less or no production. Having less or no production means less commodities in the market and even a small kid could understand and anticipate what would happen in due course of time; fueling of inflation and if nothing tangible solution is sought by the authorities, it may spiral into stagflation.

  5. Less or no industrial production. When we have less agricultural production, it impacts industrial production too because raw materials for the industries comes from farm produce. Less industrial production means prices of the products available in the market sky rockets bringing in its wake inflation of highest order.

  6. Population and inflation. When we have more mouths to feed, demand for commodities/goods and services would be more and the consequent result is anybody’s guess. This is more rampant when unemployment index touches its zenith.

  7. Demonstrative effect. Some people purchase more commodities for demonstration / to show off their purchasing power /power and pelf and economic clout sometimes creating supply vacuum which we can term as creation of artificial scarcity in the market.

  8. Consumption by those who has more propensity to consume and purchase. While there is scarcity of supply of goods and services due to one reason or another some with resources stock more goods and services and sometimes purchase more than their present requirements. This results in still more scarcity of goods and services, resulting in still more inflationary pressures.

 

While inflation is increase in prices of goods and services; deflation is lowering of prices of goods and services. Deflation too affects the producers more because their input cost for producing their goods and services is more than the prices they are constrained to sell in the market because of various factors.

Inflation could be in consumer commodities (food, metals, fuel, finished goods etc), tangible assets (any organization which uses its assets (real estate) such as building, machinery, equipment etc in order to produce consumer goods or services or real estate) or financial assets (stocks, and bonds etc) or services (teaching of a teacher, carpentry for a carpenter, painting for a painter, plumbing for a plumber etc).

Measurement of Inflation: Inflation is measured by taking into account common set of goods and services and analyze the shifts in their prices over a stipulated period of time. In this quantity and quality of the goods too are taken into account. It is also ascertained that an increase or decrease in single commodity will not have meaningful impact on the overall prices and hence inflation thereof. For example, there has been manifold increase in the prices of pulses (dalls) but it has not impacted much the prices of other commodities thus not triggered excessive overall inflationary trend.

PROFESSIONS WHICH ARE FREE FROM INFLATION

While inflation adversely impacts all sectors of economy of a country, hitting everybody’s capacity to purchase or pockets because either less goods and services are available or the available goods and services are less in supply and if available these very scarce and with high price tag. Similarly, it affects every professionals or professions without much exceptions and more so to those who have got fixed income from their monthly salaries and the problem becomes more cumbersome when these people have huge responsibilities; like meeting the expenditure on their children education, meeting expenditure at home front, purchase of home, expenses on hospitalization and other sundry expenses which may suddenly befall. This travesty is there in regard to fixed income group people; like government employees, public sector employees, private sector employees, etc. Everybody has to meet variety of demands and if supply is scarce they’ll have to shell out more money for the same goods and services.

In case of businessmen, they have to put in more capital firstly for purchase of capital intensive machinery and other equipment for starting any business and because of rise in prices of these requisite inputs for respective business enterprises their problem is compounded. More capital is required for undertaking the same business initiated earlier on with less capital. For instance, for real estate business more capital is required to meet the project costs and inflation is the enemy number one of any business due to cost overrun.

Further during inflation the loan from banks or any other sources will entail more interest rates which again is a inhibiting factor. Inflation also puts brakes on the sale of their ready to occupy units or products because of less propensity of the customers to buy because of inflationary pressures prevailing.

Despite the fact that inflationary tendencies take its toll everybody everywhere but professions or skills which are less capital intensive initially can gain even in inflation by dispensing their expertise because their services are indispensable for the society in general. These are:-

(a) Very less capital is required for training and starting the businesses related to tailoring job, electrical fitter job, welder, repairing of vehicles, computer repairing, mobile repairing, motor mechanics, etc. Then there are traditional professions like cobbler, hair cutting, sweeping, scavenging etc. Also, the money needed for the training on these skills / professions is not more in comparison with engineering or other educational pursuits. In these professions services rendered will bring more returns because of rampant inflation besides less or no input to continue these professions is needed. Inflation or no inflation these services are always required in any condition.

(b) Then there is second scenario; when there is inflation there is increase in prices of essential commodities, the hoarders of essential commodities will have field day and get a windfall profit – their commodities prices will fetch them more monetary gains without spending even a paisa on the commodities available with them. Be that as it may, the profiteers make money in such situations while the hapless people suffer the pangs of inflation. For instance if the prices of pulses increases from Rs. 100/- to Rs. 200/- per kg due to one factor or another then that person will gain excessively. Think of this gain if that fellow is having 100 quintal of pulses in his godown! This is for one commodity and what about the multiple of commodities whose prices increase during inflation.

(c) Then prominent beneficiaries from inflationary pressures are the ones who have taken debt from any bank etc with longer payment term for properties purchased or mortgaged. The government of the day too takes loans in the form of bonds etc at the time of inflation so as to meet its obligation and does its balancing act.

Conclusively, it could better be said that inflation adversely affects everybody, everywhere. As we are living in global village, any economic meltdown or slowdown impacts globally. It may be Greek debt crises, US or Chinese slowdowns will impact globally and increase unemployment and underemployment beside adversely affecting imports, exports, tourism industry etc. We have experienced fall in the prices of crude oil (which has fallen more than 50% and is sliding still down) has significantly advantageous to the countries which import crude oil but it is impacting adversely oil exporting countries. Thus it is right to say that if any part of the world slows down it will have ripple effect globally – without exception indeed. Here, in this sort of a scenario, the rich countries with resources have the to come the succor of poor countries and also to come up with solutions to ameliorate their economic health.