Inflation- a source of opportunities? Doesn’t align with what our class books suggested, right? Especially if you are a salaried employee who knows inflation could ultimately lead to unemployment, making an opportunity out of it sounds nearly impossible.
So, I think it’s time to go beyond those pages and draw conclusions based on the current market trends.
Whether you are a small business owner, a corporate giant, a 5 to 9 employee, or a homemaker, ‘inflation’ gives jitters to all. Generally, with the term inflation, people perceive a sudden increase in the prices of food and other products and services as well as a gradual drop in the purchasing power of consumers. However, what we usually do not pay much heed to is its impact on the job market and the unemployment rate, and that it could surprisingly turn out positive.
As per a report by Global Data, a globally renowned company for collecting and analyzing data to provide comprehensive, authoritative, and granular intelligence, “ The consumer price inflation rate of India reached 6.7% in July 2022, a decline of 0.3% compared to the previous month June 2022. ” Whereas, “ The unemployment rate in India hit 8.2% in August 2022 and the highest since August 2021, rising from a level of 6.8% in July 2022.”
What is the ‘Phillips Curve’?
Developed by A.W. Phillips, Phillips Curve is an economic concept that claims a stable and inverse relationship between inflation and unemployment. As per this theory, economic growth often leads to minor inflation, which is then followed by new job opportunities and less unemployment.
Through this graph of the Phillips Curve, it is quite evident that the inverse relationship between inflation and unemployment is a downward-sloping curve with inflation on the Y-axis and unemployment on the X-axis. In layman’s words, increasing inflation leads to decreasing unemployment and vice versa.
following this theory in the 1960s, many governments adopted a ‘stop-go’ strategy. Under this strategy, a certain inflation level was established and multiple fiscal policies were used to expand and contract the economy in order to achieve the target growth rates. However, this stable relationship between inflation and unemployment suffered a major blow in the 1970s when ‘stagflation’ occurred. Stagflation is a state in which an economy experiences stagnant growth along with high unemployment and ..
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