Inflation: How Does It Affect Us?

Inflation has been in the market ever since, but we barely notice it. Hence, we almost forgot it existed. However, the pressure is rising because of the uncontrollable current events happening in the world, and it has become the talk of the news, social media, and in every household.

Dr. Sherry Cooper stated that “Inflation affects your purchasing power.” because all the essentials that we’ve been purchasing, like gas, shelter, food, and clothing, to name a few, are affected by it, it really is affecting our purchasing power. With inflation, they cost more, and it involves our entire budgeting.

A mortgage is one of the factors affected by inflation, if you struggle with your payments, consult your private lender mortgage, and they’ll help you keep up.

There are three leading causes of inflation.

  1. Demand-pull

The total demand for goods and services exceeds the supply that can be produced.

  1. Cost-push

The total supply of goods and services produced in the economy somehow falls. One reason why it fails is the increase in the cost of production.

  1. Inflation expectation

Inflation expectation is the beliefs households and firms have about future price increases. Expectations about inflation can affect the current economic decision, influencing the actual inflation outcome.

While inflation brings scare to consumers, there are still individuals who benefit from it.

Individuals who benefit from inflation:

  1. Fixed Rate Borrowers

If an individual or business borrower has a fixed-rate loan, their loan amount is not affected by inflation. It also benefits them because the amount they are paying has lesser value than when they started producing their loan.

  1. Equity and Commodity Investors

Putting money in stocks is much better than holding cash during inflation because share prices can increase when price stability is low.

Companies are forced to pay higher wages when inflation occurs. Higher prices to accommodate means an increase in their prices. And when corporate profits increase, so do stock prices. It helps investors yet a good return on investment and beat the rising cost.

They put their money on commodities since they don’t lose value during inflation.

  1. Landowners and Real Estate Investors

Land is an asset that constantly appreciates value because of limited supply. Most people flock to buy land, and this causes demand for real estate.

When there are individuals who benefit from it, there are still individuals who lose because of it.

Individuals who suffer when inflation rises:

  1. Retirees

Most retirement funds are fixed and do not adjust for inflationary price increases.

  1. Savers

People with a significant savings account balance can lose out significantly during the rise of purchasing costs.

  1. Variable-rate Borrowers

A high inflationary environment force central banks such as the federal reserve to raise interest rates. Borrowers’ purchasing power is reduced due to having to make higher payments, frequently without seeing an increase in their income.

  1. Fixed-wage workers

If inflation occurs and you have a fixed wage, you won’t be able to meet the increase in prices.

It has been a problem to some and benefits to some, depending on your circumstances. Bank of Canada consecutively raised their interest rates this year, 2022. Seven hikes in total. It is to fight rising of purchasing cost.

Some events caused inflation this year.

  1. Pandemic

These past three years have been really tough for everybody around the world. Primarily when lock-down occurred and businesses closed down. When the Omicron wave passed, and the company started to roll again, the demand could not put up with the supply causing the prices to skyrocket.

  1. Ukrainian War

The invasion of Russia on Ukraine significantly affect the economy globally. It weakens foreign demand and brings more substantial price rises and longer commodity revenues. Sending prices for energy and agricultural goods higher.

  1. Supply Problems

Both globally and domestically- they proved to be more persistent and persuasive than we had anticipated. This puts upward pressure on many prices.

According to the Bank of Canada, Supply chain disruptions combined with 
strong global demand for goods had driven the total consumer price index up to 4.7%. But the service price inflation remained low.

With almost 7% today, inflation is far from expected (the target is 2% by the end of 2022) because of the said events.

In conclusion:

Inflation could be scary, but how you will prepare yourself is up to you. As stated in this article, some individuals lost and gained from it. It is an inevitable event. We have to be prepared for what’s waiting for us.

The mortgage is one of the affected factors when inflation occurs. Contact private mortgage lenders to work on your mortgage and help you if you ever struggle with your payments.

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