ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In an inflationary environment, unevenly rising prices inevitably reduce the purchasing power of some consumers, and this erosion of real income is the single biggest cost of inflation. Inflation can also distort purchasing power over time for recipients and payers of fixed interest rates.

Detailed explanation-2: -Effect of inflation on fixed income investments One explanation is that most bonds make fixed interest, or coupon payments. Rising inflation erodes the purchasing power of a bond’s future (fixed) coupon income, reducing the present value of its future fixed cash flows.

Detailed explanation-3: -Does inflation affect fixed-rate mortgages? If you are already paying off an existing fixed-rate mortgage loan, higher inflation will not impact your payment. Your interest rate is already fixed and won’t rise even if interest rates rise for new mortgages.

Detailed explanation-4: -Inflation affects consumers most directly, but businesses can also feel the impact. Here’s a quick explanation of the differences in how inflation affects consumers and companies: Households, or consumers, lose purchasing power when the prices of items they buy, such as food, utilities, and gasoline, increase.