Is inflation always bad for the economy

A simple definition of the inflation is the constant rise in the price of goods and services. More often inflation is considered bad for any economy but this is just half truth. The positive and negative impacts of inflation on the economy depend on the rate of the inflation. Moderate inflation is good for the growth of the economy while hyperinflation is injurious for it.
Created On: Jan 31, 2018 02:08 IST
How inflation affects Economy
How inflation affects Economy

Definition of Inflation:
A simple definition of the inflation is the 'constant rise in the price of goods and services'. Inflation is a market situation which occurs due to gap between demand and supply of the goods. During higher inflation; value of money decreases that is why too much money chases to few goods during inflation.
General impacts of Inflation on economy:

After the study of data of different years, it has been observed that the moderate rate of inflation motivates the investors or producers for more production in the economy because they got more return as compare to their cost. This scenario generates employment and purchasing power in the economy hence a holistic development of the economy take place.

But if the entrepreneurs do not re-invest this benefit and spend on luxurious life or not invested in the productive activities then the economy will not be benefitted; because in the absence of new investment new jobs will not be created which will further reduce the purchasing power of the consumers.

Negative Impacts of the inflation

As we know that due to hyper inflation the actual income of the people decreases which reduces their savings and the investment which further reduces export and its result makes the Balance of Payment adverse. Thus the entire economy is negatively affected by the hyper inflation.


How does inflation affect the weaker sections of the society?

A class of society receives fixed income, these are; daily wage earners, pensioners, salaried etc. Inflation reduces the purchasing power of these peoples which further reduces the total demand in the economy.

Impact of Inflation on different peoples:


     Affected Class or Sector












 Public saving  



 Public expenditure  


















 Fixed income group





Based on the information given above, you must have come to know that what is the meaning of inflation and how does it affect different sections of the economy.
But you may not be able to decide whether inflation is beneficial for the economy or not? If I talk in the reference of the Indian economy; it is observed that if the rate of inflation is between 3 to 5%; it is beneficial for the economy and if it is beyond this range it adversely affects the manufacturing sector in the country which further squeezes the job opportunities and other opportunities.

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