Inflation in economics is one of the commonly raised issues of concern seen in different countries across the globe.
Inflation can be a significant issue for businesses seeking to achieve optimum performance. With rising prices and reducing buying power, it can be detrimental to the functioning of any organization.
Therefore, it is important to take into account the effects of inflation when making any business decisions.
The reasons for inflation vary based on the changing conditions and functions of businesses in society.
It’s important for businesses to consider the potential impact of recession and inflation on their operations, as these events can have a significant effect on different industries.
The risks concerning inflation that can obstruct business growth are an issue of concern for businesses.
One of the significant differences between recession and inflation in economics is its impact on prices resulting in different effects on businesses.
In a recession, the prices of goods and services lower, due to which businesses also reduce costs to get customers. The situation is inversed in the case of inflation, where businesses are forced to reduce expenses to function smoothly.
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Causes of Inflation – An Overview
Inflation is caused due to different reasons, which can be divided into two primary categories, demand-pull inflation, and cost-push inflation.
These two causes are considered the prime factors for inflation in any society.
Inflation has a unique feature that has a massive impact on businesses as well as individuals and cannot be predicted easily. However, inflation can be considered a response to specific changes or variations in the economy.
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The fundamental causes of inflation are the following:
1. Demand-pull inflation
In most instances, inflation or a rise in prices happens due to demand-pull inflation. In such cases, the demand for goods and services will be much higher, resulting in outstripping supply.
When demand increases beyond a specific limit, it becomes difficult for businesses to meet the orders within the given time. The increase in prices due to such demand results in inflation.
2. Cost-pull inflation
Another important reason for inflation is cost-pull inflation which arises when there is a shortage in supply.
The producers are inclined to raise prices when there is a supply shortage and sufficient demand for goods and services. This results in inflation, where the purchasing power of customers is reduced.
Industries That Were Most Affected by Inflation
The industries which are affected mainly by inflation find it difficult to manage business functions during the time of inflation.
The increase in prices in such affected industries also significantly impacts economic functions in other sectors. The core industries which are most affected by inflation are the following:
The mining sector is one crucial industry that gets significantly affected due to inflation. Labor shortages, equipment shortages, and so on are different reasons for this increased impact of inflation.
The rapid inflation faced by the mining industry is increasing the cost of living of the workforce.
2. Motor vehicle and parts dealers
There was an inflation surge of over 10% in auto dealerships and the auto industry at large.
The rising price of used and new vehicles has created a problematic situation for the motor vehicles industry. In addition to it, there has been an impact of inflation on trucks, auto parts, gas, maintenance, and so on.
3. Furniture and home appliances
A jump in inflation and consumer cost of household furnishing materials like floor coverings, furniture, etc., can be seen. The shortage of laborers and lack of materials has resulted in issues concerning inflation and increased pricing.
Industries That Were Least Impacted or Benefitted by Inflation
Some industries acquire various benefits due to inflation, making those industries least affected by the same.
Such industries undergo development and gain enhanced productivity during increased rates of inflation.
The impact of recession and inflation on different sectors is based on how the functions are carried out. Important industries which are least affected by inflation are the following:
1. Real Estate
The impact of inflation on real estate has been beneficial for the overall development of the real estate business.
The increase in inflation rates also increases real estate prices, providing more benefits to investors. Singapore’ private residential properties saw a 3.5% price hike in the 2nd quarter of 2022.
Inflation’s positive impact on real estate makes it easier to increase real estate investments.
Such inflation in economics helps make existing real estate more valuable and ensures higher mortgage rates.
2. Financial companies
Banks, investment companies, and so on, which come under financial companies, are the least affected by inflation.
The rules and regulations incorporated in such sectors have made financial companies robust and stable.
The uncertainty in the market due to inflation can be regulated to some extent through healthcare sectors giving inflation protection.
One of the least affected industries due to inflation is healthcare, as it is an expanding sector involving different aspects.
Singapore is likely to experience a high inflation trend even in 2023, according to the latest report by Monetary Authority of Singapore (MAS).
Recession and inflation having similar economic impacts can be controlled only through enhanced management of business functions.
Reducing business expenses can be adopted as an effective measure to control inflation and enhance results.
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