It is evident of the fact that when there is inflation the effect on households income is always immense. Owing to the fact that consumer price is the level of prices of all goods and services that consumer are willing to pay for at a given time, thus if the Price or prices are low the consumers will have more power to spend and have more benefit of it money. However if the opposite exist, where the prices are at a higher level that will adversely affect the consumers as they will spend more to have less product or services.
Moreover, this always involves the laws of supply and demand. In the laws of supply it States that producers will love to produce when the prices are higher. In the other hand, demand states that consumer are willing to buy when the prices are at the lowest. With such analysis it senses two signals where we could say the higher the prices the lower the demand, and the lower the prices the higher the demand.
In an economy that is challenge with inflation, the effect can be diversely affecting household income. However, inflation is the continuous increase of prices, which thus affects the value of money. Inflation served as bottlenecks to the economy as it thus restrict people to spend and have value for money.
In a situation where there is inflation in consumer price the effects on households can be better explain as follows:
1.Devaluation of currency: devaluation of currency normally occur as the intentional or deliberate lowering of a currency’s value compared to another country’s currency or a standard value. In the effect of currency devaluation, the consumer normally have burden in spending more money for the purchasing of goods, which thus has an adversary effect on households income.
2. Standard of living.
The average cost of a standard set of basic necessities of life, especially of food, shelter and clothing. If the prices of the basic necessities of life are high, it would affect household income has most necessities cannot be met. However, more money will be spend to acquired less products or services. It would affect household income, thus reducing the standing of living.
3.Low buying power: low buying power normally occurred when the supply of product is low and the Price of the product is high. It has a negative effect on households income has consumer will buy less product with more money.
4.Cost of borrowing will rise: in a case where inflation occur it would affect the cost of borrowing as consumer will have less disposable income to spend.
5.Balance of payment: A measure of all flows of money into and out of a country including payments for goods and services and capital flows. The effect on balance of payment is so great as it span all throughout. If the total cost of importan is higher than the export this will have negative effect on households as more local currency can be put together to have an equatable balance of payment in having export goods.
In conclusion, the above are the effects on consumer price inflation on households.