Does Inflation Help In Economic Recovery?

Yes, you read that right. Many studies keep coming up with new figures and statistics about the effect of inflation on the economy and societies. It can be both negative or positive in most of the cases. At times it helps the economy to recover from the recession and that is the amazing contradictory aspect of this phenomenon.

Of course, if inflation is too high then the economy and the society or the country may go through tough times. But when inflation is controlled by the government and is not allowed to go beyond a reasonable rate, then it can help the society to prosper. It may, in fact, lead to more employment and more money in circulation and this positive outlook may help the economy to improve and grow.

Distribution of wealth changes with inflation

If the rates of interest go down then the people dependent on their savings, like retired citizens will obviously lose money and this may lead to an unequal distribution of money within the system. The real income of people may stay at the same level for a long time. With fewer incentives and encouragement savings also go down. All in all, inflation may make some people rich and others remain poor.

The country may suffer an economic burden

If one country has more inflation than others, then it will lose money by exporting or importing goods from other countries. This, in turn, further corrodes the value of its currency and GDP of this country goes down too. Moreover, reduced orders and consequent pay reductions and fewer jobs may harm the economy of the country suffering from a higher rate of interest. 

Deflation is bad too

Many studies and even the past experiences have shown that deflation is bad too for any economy. The rate of inflation is calculated using the consumer price index. Deflation or hyperinflation, both have a negative impact on the purchasing power of people and the rates of lending and borrowing. These affect the economic recovery process.

If the government is in control of the situation and they can predict or plan at least a couple of years of future policies, then it will help people to plan their spending and investing. If the rate of inflation is controlled, then they can turn around the economy and make it worthwhile for everyone. Companies and individuals both can plan their strategies based on the state of the economy. The expansion, borrowing, spending and investing are all decisions based on the economic policies and established on rates of inflation.A controlled rate of inflation governed carefully by the state authorities will help to put the economy back on track.