Question

Explain its impact on the producers and salaried class.

Answer 1

It is a situation in which prices of goods and services persistently rise at a fast face.

(i) Impact on Producers:

Businessmen (i.e., entrepreneurs, traders, producers, etc.) tend to gain during inflation because

• prices of their inventories (stock of goods and raw material) go up and thereby- increasing their profits.
• prices rise at a faster rate than the cost of production.
• they are generally borrowers of money for business purposes.

Thus, inflation makes the rich (i.e., the business community) richer.

(ii) Impact on Wage and salary earners during inflation:

It is due to the reason that wages and salaries do not increase in the same proportion in which the prices or the cost of living rises. But those workers and employees who have formed strong trade unions stand to lose less in comparison to those who are not organised. Due to inflation, the purchasing power of money falls. As a result of it, fixed income earners tend to buy less amount of goods and services than before even when there is a little rise in their wages. In this way, inflation increases the economic burden of those persons who are not in a position to bear it. Therefore, it is rightly called unjust.