{"id":25662,"date":"2015-02-23T07:25:36","date_gmt":"2015-02-23T07:25:36","guid":{"rendered":"http:\/\/vskills.in\/certification\/blog\/?p=25662"},"modified":"2024-04-03T13:15:46","modified_gmt":"2024-04-03T07:45:46","slug":"inflation-effects","status":"publish","type":"post","link":"https:\/\/www.vskills.in\/certification\/blog\/inflation-effects\/","title":{"rendered":"INFLATION EFFECTS"},"content":{"rendered":"<p style=\"text-align: center\"><a ref=\"magnificPopup\" href=\"http:\/\/vskills.in\/certification\/blog\/wp-content\/uploads\/2015\/02\/inflation.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-25705\" alt=\"inflation\" src=\"http:\/\/vskills.in\/certification\/blog\/wp-content\/uploads\/2015\/02\/inflation.jpg\" width=\"284\" height=\"177\" \/><\/a><\/p>\n<p>Particularly when it was high (e.g., during the 1970s and the early 1980s), inflation<br \/>\ndistorts company earnings because it acts as an incentive for them to over invest and<br \/>\noverproduce.<\/p>\n<p>Should a company planning to expand the capacity of a plant around<br \/>\n4 years in the future decide to build it immediately, it would save 30\u201340% of its cost<br \/>\nin nominal terms, giving it a competitive advantage in terms of accounting costs.<\/p>\n<p>Building up excess inventories is another temptation in high-inflation environments<br \/>\nbecause time increases the value of inventories, thereby offsetting the financial<br \/>\nexpense involved in carrying them and giving rise to inflation gains in the accounts.<br \/>\nInflation gives rise to a whole series of similar temptations of artificial gains,<br \/>\nand any players opting for a more cautious approach during such periods of<br \/>\nmadness may find themselves steamrollered out of existence.<\/p>\n<p>By refusing to build<br \/>\nup their inventories to an excessively high level and missing out on inflation gains,<br \/>\nthey are unable to pass on a portion of them to consumers, as their competitors do.<br \/>\nConsequently, during periods of inflation:<\/p>\n<p>1)depreciation and amortisation are in most cases insufficient to cover the<br \/>\nreplacement cost of an investment, the price of which has risen;<\/p>\n<p>2)inventories yield especially large nominal inflation gains where they are slow-<br \/>\nmoving.<\/p>\n<p>&nbsp;<\/p>\n<p><a href=\"http:\/\/www.vskills.in\/certification\/accounting-banking-and-finance\">Click here for government certification in Accounting, Banking &amp; Finance<\/a><\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Particularly when it was high (e.g., during the 1970s and the early 1980s), inflation distorts company earnings because it acts as an incentive for them to over invest and overproduce. Should a company planning to expand the capacity of a plant around 4 years in the future decide to build it immediately, it would save&#8230;<\/p>\n","protected":false},"author":600,"featured_media":25705,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_joinchat":[],"footnotes":""},"categories":[1519],"tags":[2270,2269,1365,1770],"class_list":["post-25662","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-accounting-banking-and-finance","tag-consumers","tag-gains","tag-inflation","tag-investment"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Inflation<\/title>\n<meta name=\"description\" content=\"How does Inflation effect companies and to what extent?\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.vskills.in\/certification\/blog\/inflation-effects\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Inflation\" \/>\n<meta property=\"og:description\" content=\"How does Inflation effect companies and to what extent?\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.vskills.in\/certification\/blog\/inflation-effects\/\" \/>\n<meta property=\"og:site_name\" content=\"Vskills Blog\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/vskills.in\" \/>\n<meta property=\"article:author\" content=\"https:\/\/www.facebook.com\/\" \/>\n<meta property=\"article:published_time\" content=\"2015-02-23T07:25:36+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-04-03T07:45:46+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.vskills.in\/certification\/blog\/wp-content\/uploads\/2015\/02\/inflation.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"284\" \/>\n\t<meta property=\"og:image:height\" content=\"177\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Deepak Narang\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Deepak Narang\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"1 minute\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.vskills.in\/certification\/blog\/inflation-effects\/\",\"url\":\"https:\/\/www.vskills.in\/certification\/blog\/inflation-effects\/\",\"name\":\"Inflation\",\"isPartOf\":{\"@id\":\"https:\/\/www.vskills.in\/certification\/blog\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.vskills.in\/certification\/blog\/inflation-effects\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.vskills.in\/certification\/blog\/inflation-effects\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.vskills.in\/certification\/blog\/wp-content\/uploads\/2015\/02\/inflation.jpg\",\"datePublished\":\"2015-02-23T07:25:36+00:00\",\"dateModified\":\"2024-04-03T07:45:46+00:00\",\"author\":{\"@id\":\"https:\/\/www.vskills.in\/certification\/blog\/#\/schema\/person\/cf6a3dd957876fba2f816c1007142095\"},\"description\":\"How does Inflation effect companies and to what extent?\",\"breadcrumb\":{\"@id\":\"https:\/\/www.vskills.in\/certification\/blog\/inflation-effects\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.vskills.in\/certification\/blog\/inflation-effects\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.vskills.in\/certification\/blog\/inflation-effects\/#primaryimage\",\"url\":\"https:\/\/www.vskills.in\/certification\/blog\/wp-content\/uploads\/2015\/02\/inflation.jpg\",\"contentUrl\":\"https:\/\/www.vskills.in\/certification\/blog\/wp-content\/uploads\/2015\/02\/inflation.jpg\",\"width\":284,\"height\":177},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/www.vskills.in\/certification\/blog\/inflation-effects\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/www.vskills.in\/certification\/blog\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"INFLATION EFFECTS\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.vskills.in\/certification\/blog\/#website\",\"url\":\"https:\/\/www.vskills.in\/certification\/blog\/\",\"name\":\"Vskills Blog\",\"description\":\"Vskills - 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