Special Report

High prices for energy, food, and other goods and services affect the entire economy, and high inflation rates are reflected in the cost of living, doing business, borrowing money, mortgages, government and private bond yields and multiple economic aspects.

The idea of ​​inflation may be in your favor if it is in the form of inflation in income or assets: real estate, shares, .., but if your income is less than the rate of inflation, the cost of living will increase, and over time the overall economy will be affected Negatively.

Major causes of inflation

What causes inflation in the economy? Actually, there is no specific answer agreed, but there are several factors that play a role in inflation:

  • Increasing the money supply that exceeds economic growth.
  • Increasing the country's debt, which puts the government in front of two options: either raising taxes or printing more currency.
  • Increasing liquidity and consequently increasing the demand for consumer goods, which leads companies to raise prices in order to balance supply and demand.
  • Increasing production input costs, and companies transferring this increase to the consumer by increasing prices.

The difference in effect behind indicators

When looking at the different economic consequences of inflation with varying rates, you should consider:

GDP: This indicator reflects the total value of all goods and services, and as prices rise, the value of the currency decreases and its purchasing power decreases. < / p>

The GDP is a measure of economic growth, and the rates of growth or decline are adjusted in line with inflation, so if the growth is 5% and inflation is 2%, the GDP will be 3%.

Borrowing cost: Reducing inflation and interest rates will lower the cost of borrowing money to invest, buy goods like cars, or mortgage insurance, which encourages increased consumption.

Banks and other financing institutions may be reluctant to lend to lower rates of return, which reduces profit margins, and companies can plan borrowing, recruitment, marketing and expansion strategies accordingly.

Likewise, investors may know the size of the yield on government or private bonds and other debt instruments because most of them are tied to the returns on treasury bonds.

Consumer Price Index: If the average price of basic goods and services increases 3%, it will stand ...