Effects of Inflation

Savings will be reduced

Deterioration and depreciation in the context of real income will happen to the values of paper assets or fixed deposits such as bonds and life insurance policies. (Vengedasalam and Madhavan, 2011; McConnell, Brue and Flynn , 2012) As the depreciation or deterioration of the value of fixed deposits will happen because of inflation, investment and savings in non-financial sectors, which includes lands, will be reduced. (Vengedasalam and Madhavan, 2011)

The pattern of the distribution of income will be changed

Groups of people who lose from continuous inflation:

(a) Creditors. This is because the real value of the money owed to them will be less. 

 ( Vengedasalam and Madhavan, 2011)    

(b) Fixed-Income receivers. This is because the real value of their income will be less.                    ( McConnell, Brue and Flynn , 2012)

(c) Savers. This is because the value in terms of real income of fixed deposits or paper assets will be less. (Vengedasalam and Madhavan, 2011)

Groups of people who gain or who are helped from continuous inflation:

(a) Debtors. This is because the real value of money they owe will be less.

 (b) Property owners. This is because property owners gain from the increased property prices because of inflation. (Vengedasalam and Madhavan, 2011)

Production will increased

As long as old stocks are held by producers, higher profits will be made by producers because of the rise in the general level of prices. Thus, the producers will be led to increase their production level. Consequently, the rate of unemployment will be reduced. (Vengedasalam and Madhavan, 2011)