Inflation is the periodic increase in the price of goods and services. This causes a wide change in our cost and standard of living. This is pure economic definition, but in general, it means that over time we need to spend more of our money to satisfy our needs ranging from day to day to long term. Inflation has an effect on the economy as a whole. It has connected effect when it affects the value of a common currency, for example, the dollar.
When the price of goods increase, our cost of living will decrease and this has an effect on our standard of living and that is why inflation is considered bad for an economy and its people.
- Inflation is caused when the demand for particular good and services in an economy increase continually. This happens when the money supply in an economy increases.
- Inflation occurs when there is an increase in the cost of production in an economy. This means the manufacturing a good from the first step till its completion and the costs associated with this is increasing and thus the producers impose this increased cost on the price at which it will be sold to the market.
Measures of inflation:
The government has formulated certain figures or indices to measure inflation effect on the rise of prices. They are:
1. Consumer price index: this is the value of the rise in the price of necessary goods in daily use like groceries, gasoline etc. These are called consumer goods. This measures price change from the perspective of the purchaser.
2. Producer Price Index: this measures the change in selling prices over time and this affects the perspective of the seller.
Some of the other measures which determine inflation are:
- GDP Deflator: a measure of the rise in the price of a good with regard to the gross domestic product of the economy.
- Asset price inflation: an increase in the price of fixed assets or financial assets like land, stock etc.
- Regional inflation: price variation in different places which fall under an economy and the effect of these on the entire economy.
- Historical inflation: making a calculation of price change in the country in periodic effect, comparing the living standards from previous econometric date obtained.
Such calculations and findings help in knowing what causes inflation and what will be the effect of it on the standard of living. This is helpful in regulating measures to manage the blow on the cost of living of people and economic challenges. Hence the inflation can be managed accordingly by the research of the changes in the economy.
It is said that the best of a man’s capabilities is revealed only when he/she is made to perform under extreme conditions. Similarly, variations and fluctuations in the stock market can be viewed as an opportunity rather as a threat that needs to be feared, as these present business leaders and managers with several different real-life scenarios that can make them a better a leader and their company a better performing business entity.
Some of the things that entrepreneurs can learn from stock market variations include:
Not taking decisions or getting involved in the process of decision-making in a hurry based on the declining market trend. Rash decisions will create bigger losses than the under-performing stock market
Possess the capability to notice specific trends and cycles that will repeat itself naturally. This is a good way to seize profitable opportunities, while carefully avoiding the non-profitable ones.
Understanding where to invest money and when. Market fluctuations can be a trying period, however, if you know where to put your money, then the burden is reduced to half
Some of the interesting things that a stock market fluctuation presents to business entrepreneurs include:
It provides an opportunity to tap into the company’s internal venture during the stressful period, which can be further pursued to generate profits.
It forces businesses to innovate and invent newer methods and strategies that are developed purely based on the knowledge of the organization’s presently available resources and capabilities.
It allows the management and the employees to learn new business cases and adopt low learning.
It promotes the development of the organization’s strong and intangible competencies in the areas of specific domains that the firm is comfortable in doing business.
It also provides businesses with an advantageous position to leverage the developed competencies to the organization’s benefits.
It provides scope for improvement based on internal competencies and innovations to deal with the present fluctuating market from past business-specific experiences.
It bestows the management and staff of the business to develop certain market-specific expertise and skills to avert major blows that could affect the regular business operations.
Thus, it is important not be stressed or remain under pressure during economically changing times. Rather, entrepreneurs must stay stable and invest in stocks that are clear and understandable. Moreover, experiences and trade history can teach a thing or two in recognizing profitable trends and opportunities based on the entrepreneur’s tolerance for risk.