We are at a time where we feel that prices are rising everywhere; no matter where we turn, whether it be gas, electricity, fuel, or even the grocery shopping, it is currently a time of high inflation.
High inflation leads to rising prices and everything seeming much more expensive than it used to be; for many people, it feels that these prices are only going to continue to climb.
Inflation has a significant effect on all consumers, no matter what the industry or product is; inflation affects everyone and everything. It can be seen in things like a cup of coffee which has increased substantially over the last two years.
As inflation increases, the demand for unsecured and secured loans online often puts the population subject to inflationary pressures. This guide will go through what high inflation means for consumers, whether it is wrong or good and what it may lead consumers to do when they realize that inflation is on the rise, and so are the prices of products.
What is inflation?
In the simplest terms, when the prices of goods and services are rising, then the inflation rate is positive and high. It does not mean that all the prices are rising at the same rate, just that enough prices are rising that means the average of prices is on the up and therefore inflation is positive.
The adverse effect when prices are falling on average is called deflation. The consumer price index (CPI) measures the prices of goods and services that consumers buy each month and calculates whether those prices are rising or falling.
The inflation rate is a percentage of the price change from the same month one year ago. For example, if the inflation rate is at 5%, then when your shopping costs you $100, it costs you $95 the year before, and if the inflation rate stays the same for the next year, it will cost you $105 the year after.
Why is high inflation bad for consumers?
Inflation is bad for consumers because the cost of living rises. Money loses value, and wages do not fairly represent how much everyday expenses are costing. As of March 2022, the official inflation rate sits at a whopping 8.5%.
For example, if inflation is at 7%, but your pay is only rising 5% per year, there will be a gap in money. Consumers may have to look elsewhere for work, ask for a pay rise, or borrow money.
Inflation can sometimes also cause borrowing costs to increase, making it hard for consumers to repay old debts if they had not locked in old interest rates from when they first took the loan out.
Hugo Anglesford of Doddler, sheds light on this and says, “Higher inflation and the inevitable squeeze of people’s finances may lead people to turn to high-cost short term loans like payday and other similar forms of unsecured finance.”
The volume of short-term loans taken out by a population is often an indication of the nation’s finances and how under pressure average consumers feel regarding the money in their pockets.
What does inflation cause consumers to do?
One of the most common responses to rising prices is for consumers to buy more. Consumers believe that cash is only losing value and that it will continue to depreciate and therefore they need to spend before it gets worse.
Many people are bulk buying and stocking up on groceries. However, this can be dangerous as this can cause inflation to go up even further. As the demand for products grows, consumers in the long run become worse off because of bulk buying and spending.