Seven ways inflation will pinch you | business | Hindustan Times
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Seven ways inflation will pinch you

When inflation goes up, your employer’s costs go up, and to save money, the employer may reduce or hold back your pay increases.

business Updated: Apr 04, 2008 23:34 IST

With wholesale price-based inflation now at 7 per cent, the signals are out that the economy is not in the best of shapes. Here is how it can affect you, if you are a salaried middle-class citizen.

1: Your monthly expenditure will go up, your groceries will cost more and your disposable income will buy less for the same money. Retailers will pass on the rise in wholesale prices to consumers

2: Your home loan rates may shoot up. The Reserve Bank will take steps to tighten money supply. This will either stop interest rates from falling – or could even make them rise to curtail overall demand in the economy.

3: Your salary hikes may be curtailed. When inflation goes up, your employer’s costs go up, and to save money, the employer may reduce or hold back your pay increases.

4: Growth may slow – and so will job prospects. Industries put their foot on the brakes or accelerators when interest rates go up. They hire fewer people or take their time to make up their minds on investment plans. This could stagger job prospects.

5: Your stocks and mutual fund values suffer. It is simple: when economic growth suffers, corporate earnings take a knock and bulls and foreign investors stay away from the market.

6: Exports may be hit. If inflation goes up, the cost of manufacturing goods or producing services like software in the country goes up. The country’s competitiveness may suffer as a result and export sector prospects in industries like textiles, software and jewellery may be hurt.

7: Imports will become costlier if the rupee becomes weaker. That makes the government’s oil bill higher, and this could potentially lead to increased fuel prices – be in diesel, cooking gas or kerosene. And foreign trips will become tougher as well.