The paper "Analysis of the Business Environment" is a perfect example of an assignment on business. Economic growth is determined by the quality of living standards of the people. The prices of goods and services affect economic growth and the quality of people’ s lives. An increase or decrease in general prices of goods and services (inflation and deflation) can stimulate or reduce economic growth (Sloman et al. , 2010). In Eurozone, the inflation rate has been decreasing since 2013, and deflation is expected in the year 2015 since some countries have already started experiencing its effects.
The anticipated Eurozone inflation rate is 2% annually (Great Britain: H.M. Treasury, 2013). However, the recent move has portrayed a declining trend in the inflation rate that has aroused the fear of the occurrence of inflation. This study evaluates the present inflation rates in the UK and the reasons why the UK may fear the occurrence of anticipated deflation. Inflation Inflation is contributed by a number of factors such as an increase in demand than supply of goods and services, decline in the supply of goods or services, increase in the supply of money in the economy, etc.
(Granville, 2013, p. 143). For example, increases in factory wages, taxes, and the cost of imports will make companies’ increase the cost of products thus leading to cost-push inflation. Inflation is a characteristic of a growing economy because increased spending stimulates economic growth (Office for National Statistics, 2014). Although inflation affects various people differently its effects on the economy depend on whether that inflation was anticipated or expected (Great Britain: H.M. Treasury, 2013). In the case of anticipated inflation whereby the inflation rate corresponds to the expectations of a majority of the people, compensatory strategies can be undertaken to minimize its costs (Office for National Statistics, 2014).
For example, banks will adjust interest rates while employers will adjust wages and salaries for their employees in order to compensate for the effects of inflation. Inflation may cause harm to the economy because investors may shun investing their resources because of uncertainty about expected income (Curwin, & Slater, 2007). It results in market inefficiencies that make it tough for the companies to budget for long-term plans.
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