Inflation and Its Types

Inflation is the cost accrued to a company for doing business. Inflation is directly relating to supply and demand. When the supply is low, the demand is high causing the cost of a product to go up.  Blue ray players and disc are a new technology when the demand for them drops so wills the price making them more desirable with a more affordable cost to consumers. The case of deflation works the opposite way.

                A business suffers from inflation in several ways. The first is when the internal cost of running a business is increased. Internal cost includes desk, pencils, pens, paper products and office supplies needed to conduct business. Desks and furniture are also an internal cost. When the price of purchasing items needed to run the business goes up the cost of running the business increases.

 Internal cost includes employee salaries. This is money paid out to employees to do a job and is included in the final cost of a product. Pay raises and promotions are an internal cost required to keep employees happy and satisfied within their position.

                External cost of business is all monies paid to outside companies to keep the business running.  Some external costs are electricity, water, rent, mail services and advertising.  The external costs for running business are as varied as businesses themselves. Some external cost can lowered, changing mail services to one that charges less can save money. Cutting advertising budgets cut the amount of money will pay out and can help keep the retail cost of the product down. The practice of doing this is most visible in house or generic brands, when a smaller company offers a similar product at a reduced price letting the big people do most of the advertising. The little people ride on the tail fins of the big fish; breakfast cereal is a very good example.

 When a company has to pay more for essential production or outside resources usually, the first things cut are employee benefits like life insurance or health care. Companies try to make these cuts so employees will not notice. When benefit cuts cannot keep up with cost of production the next step is a hiring freeze then layoffs. Employees that are not lay off absorb the lost workers causing us to work harder for our money. In addition to working harder when cost goes up pay, incentives go down causing inflation for the worker. The workers will have to pay the higher price when purchasing the product and pay for it in loss of income as well.

When it comes to inflation it is ultimately consumes that pay the price as the cost of doing business is handing down. This term knows as shifting the blame. Consumers do have some control in the economic process. Consumers can become economically conscious by price shopping, and thinking purchases out prior to making them. Do you really need a new car because the government says you do?  How about a new laptop when yours works fine? Smart consumers think in an economic way.