inflation: Inflation – An economic scourge or a source of new opportunities

Inflation, a source of opportunity? That’s not what our class books suggested, is it? Especially if you’re a salaried employee who knows that inflation could ultimately lead to unemployment, making that an opportunity seems nearly impossible.

So, I think it’s time to go beyond these pages and draw conclusions based on current market trends.

Whether you’re a small business owner, a corporate giant, a 5 to 9 employee, or a housewife, “inflation” gives everyone jitters. Generally, with the term inflation, people perceive a sudden increase in the prices of food and other products and services along with a gradual decline in the purchasing power of consumers. However, what we usually don’t pay attention to is its impact on the labor market and the unemployment rate, and that it could turn out to be surprisingly positive.

Having trouble understanding the relationship between inflation and unemployment?

Let’s decode together!

According to a report by Global Data, a world-renowned company for collecting and analyzing data to provide comprehensive, authoritative and granular intelligence, ”
India’s consumer price inflation rate reached 6.7% in July 2022, down 0.3% from the previous month of June 2022.
Whereas, ”
India’s unemployment rate hit 8.2% in August 2022 and the highest since August 2021,
falling from a level of 6.8% in July 2022.”

Experts believe that for inflation to fall, unemployment must rise. But the problem here is that an increase in the unemployment rate does not mean that companies stop hiring. We can just expect a change in the way they hire. For example, over the past year we have seen a number of mass layoffs, but we have also seen many new and unconventional job opportunities changing the dynamics of the employment sector. In other words, a sudden upward movement in the unemployment rate may also indicate a change in hiring trends.

Let’s try to understand this in another way. Have you heard of the Phillips curve?

What is the “Phillips curve”?

Developed by AW Phillips, Phillips Curve is an economic concept that claims a stable and inverse relationship between inflation and unemployment. According to this theory, economic growth often leads to minor inflation, which is then followed by new job opportunities and lower unemployment.

Agencies

Through this graph of the Phillips curve, it is quite evident that the inverse relationship between inflation and unemployment is a downward curve with inflation on the Y axis and unemployment on the X axis. Simply put, an increase in inflation leads to a decrease in unemployment and vice versa.

Following this theory in the 1960s, many governments adopted a “stop-go” strategy. Under this strategy, a certain level of inflation was established and multiple fiscal policies were used to expand and contract the economy to achieve the target growth rates. However, this stable relationship between inflation and unemployment suffered a severe blow in the 1970s when “stagflation” occurred. Stagflation is a state in which an economy experiences stagnant growth accompanied by high unemployment and high inflation. Obviously, this is a very terrible economic condition for any nation.

As a result, experts took a closer look at the theory and concluded that since people can adjust their expectations and make monetary decisions about future inflation rates based on current rates, the Phillips curve cannot work effectively. only for a short time.

Inflation=Unemployment=new opportunities, how?

Whenever high inflation hits a country, employers immediately resort to cost cutting to ensure their own survival and profit. And often, to cut costs, companies prefer to hire part-time employees, contract labor, gig workers, or freelancers. This saves them from incurring expensive health care benefits. And don’t forget how much a business saves on the overall monthly cost which includes incentives, travel allowances, electricity, etc. by simply switching to site workers who can provide impeccable services.

The main conclusions of the recent report by
Branch X Marqueta. Among a range of other topics, this report dives deep into the factors affecting gig work, what gig workers are looking for in a platform, and changes in labor economy payment trends. .

The report says that the self-employed in the United States grew from 12.9 million to 23.9 million from 2017 to 2021. And that number is expected to quadruple by 2027. The report also cites the “great quitting” for fueling demand for on-demand work. 35% of respondents confirmed that they had quit or planned to quit their full-time job to join the gig workforce. In addition to this, several people also said that they plan to take on more and more concert projects to survive the high inflation situation.

Needless to say, inflation may come down soon, but the resulting opportunities are definitely here to stay, and you need to monetize them.

In fact, here are some other positive effects of inflation that you should be aware of.

  • Improved purchasing power – By anticipating higher prices in the near future, consumers decide to spend more in times of inflation. And this in turn gives a boost to the economy. Whereas in deflation, people avoid spending money in the hope that the prices of goods and services will see a new low.
  • Wages/higher wages – To cope with the overall rise in the cost of living, employees often begin to demand a higher salary. This wage increase also allows them to spend more, which then promotes economic growth.
  • Assistance with debt repayment – Now that we know that there is a higher chance of rising wages during inflation, we can easily conclude that a borrower also benefits greatly throughout this period. If a borrower had borrowed money before inflation, they now have to pay the same amount but with a higher salary. Therefore, full repayment of the loan no longer seems like a burden.
  • Lenders are witnessing huge gains – In addition to borrowers, lenders can also enjoy a range of benefits during inflation. Higher commodity prices would mean more people asking for credit, especially if it was the unlucky ones who couldn’t convince their managers to raise salaries. Moreover, higher prices would also help lenders earn more interest, that too for a longer period of time, as people might take more months to pay off the heavy debt.

The bottom line

While higher prices suddenly affect a common man’s ability to buy, inflation is not always bad. What we often hear about inflation is partly true. Moderate inflation is actually considered good and its positive/negative impacts mainly depend on the rate at which it occurs. Moreover, since the advent of the pandemic, the Indian economy has undergone a significant change.

The growth in technology and the emergence of new flexible ways of working have taught people how to survive chaos and turn it into an opportunity. And inflation is no different. You just need to analyze and navigate through changing market trends to ensure your survival and growth even in adversity.

Inflation, just a windfall.

Those days are over!

This may surprise us all for good.

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