One of the most significant impacts of inflation is on the purchasing power of consumers
The buying power of money declines as prices rise
This means that consumers can buy fewer goods and services with the same amount of money than they could before inflation
Inflation, therefore, reduces the standard of living for consumers
For example, consider a consumer who earns $50,000 per year and spends $30,000 on basic necessities such as housing, food, and clothing
If inflation increases the cost of these necessities by 10%, the consumer would need to spend $33,000 to maintain their standard of living
This means that the consumer’s purchasing power has decreased by 6.7%
Inflation also has a significant impact on businesses. As the cost of goods and services increases, businesses may need to increase their prices to maintain profitability