Introduction:

Inflation is a global phenomena. It occurs in every type of economy. Inflation is a situation with rising prices which causes a decline in the purchasing power of money. Inflation is a price rise which is unseen and uncorrected situation. It occurs in both time war as well as in peace time. Inflation means the increase in the general prices of goods and services in an economy over a period of time, leading to a decrease in the purchasing power of money. When inflation occurs, each unit of currency buys few goods and services. It is measured as a percentage increase in the Consumer Price Index (CPI) or the Producer Price Index (PPI). The effects of inflation depends on the nature of on inflation.

Harry Johnson, defines inflation as a sustained rise in prices.

Crowther, defines inflation as a state in which the value of money is falling, prices are rising.

Effects of Inflation on Distribution.

1. Fixed Incomes: Individuals of fixed incomes like retirees living on pensions or fixed annuities, may see a decrease in their purchasing power as inflation effects the value of their income. Fixed incomes groups are hit hard by inflation, because while their money incomes remain fixed but fall in the value of money.
2. Wage Earners: If wages fail to keep pace with inflation, real wages may decrease. This can lead to a redistribution of income from labor to capital, as workers’ purchasing power decreases while business profits may be maintained or even increased due to higher prices.
3. Creditors and savers: Inflation can adversely affect savers and creditors. The real value of savings and fixed-interest investments diminishes as inflation rises, leading to a redistribution of wealth from savers to borrowers. Borrowers benefit from being able to repay loans with less valuable currency.
4. Wealth Redistribution: Inflation can redistribute wealth between rich classes. Assets such as real estate, stocks, and commodities etc. As the prices of these assets rise during inflationary periods, individuals holding these assets may see an increase in their wealth, while those without such assets may experience a relative decline.
5. Impact on the Poor: Inflation can affect low-income households very badly. These households usually spend a higher proportion of their income on necessities such as food, housing, and healthcare, which are often subject to price increases during inflationary periods. As a result, inflation can bring income inequality by bringing down the purchasing power of the poor.
6. Effects on Farmers: Farmers gain from inflation in many ways. They get higher prices for their produce , especially for essential commodities. They also can do hoarding of farm products and gain from speculative rise in prices. they also gain when the repay loans, actually the repay less than they have borrowed because of fall in the value of money.
7. Government Policies: Governments may implement policies to mitigate the adverse distributional effects of inflation, such as subsidies for low-income households or progressive taxation. However, these policies may also have unintended consequences or be politically contentious.
8. Businessmen: Inflation can impact business owners differently depending on their ability to adjust prices. Businesses that can quickly adjust prices to reflect increased costs may be able to maintain or even increase their profit margins during inflationary periods. But they have to with huge competition leads to compromise in profit margin.

also read: explain the causes of inflation.