Inflation is a sustained increase in the general price of goods and services in an economy over time. If inflation is occurring, leading to higher costs for necessities such as food, it can have a negative impact on society. It can occur in nearly any service or product, including need-based expenses such as medical care and housing. Several factors can drive inflation in an economy. Usually, inflation results from an increase in production costs or an increase in demand for products or services.
While consumers experience little benefit from inflation, investors can enjoy a raise if they hold assets in the markets affected by inflation. Those who invested in energy companies might see a rise in their stock prices if energy prices are rising. Some companies obtain the rewards of inflation if they can charge more for their products because of a rush in demand for their goods. Home-building companies can charge higher prices for selling homes if the economy is performing well, and housing demand is high.
Inflation can give businesses with pricing power and increase their profit margins. If the margins are rising, it means the prices that companies charge for their products are increasing faster than increases in production costs. However, companies can also be harmed by inflation if it is the result of a rush in production costs. The companies will be at risk if they can’t pass on the higher costs to the consumers through higher prices.