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Inflation and its effects on asset prices
ECHOKENYA
#1 Posted : Tuesday, May 18, 2010 1:38:14 PM
Rank: New-farer


Joined: 4/26/2010
Posts: 71
Location: Thika/Nairobi
I feel that inflation deserves a more detailed analysis because of the complicated ways in which it affects businesses.
Let me explain abit;

During inflationary period the currency loses value which cause all the securities denominated in that currency lose value. In case of
long term debt the impact may be even higher because the central banks resort to increase in interest rates to check the inflation
which depresses bond prices.

The real assets like properties,are less vulnerable to inflation because their nominal values rise along with inflation.

EFFECT OF INFLATION OF BUSINESS


A) Inflation tends to increase the prices of assets like real estate, plant and machinery which directly adds to the nominal value of existing stock of capital.

B) Inflation and its effects on asset prices. The fall in the value of currency decreases the indebtedness of
the company.

Let's enumerate the detrimental effects of inflation on business

C) Inflation affects the consumer demand because of increased cost of living which may not be offset by a rise in monetary wages.

D) Inflation increases the working capital requirements to manage the same level of output. This affects working capital intensive
businesses like retail in a big way.

E) Any increase in monetary wages due to inflation can lead to rise in operating cost which is risky because monetary wages tend to be
sticky and may not decline as situations change.
F) In a competitive environment the businesses may not be able to pass costs to the consumers.
http://echoproperties.kbo.co.ke
Echo estate management Limited
muganda
#2 Posted : Tuesday, May 18, 2010 6:14:02 PM
Rank: Elder


Joined: 9/15/2006
Posts: 3,905
@ECHOKENYA, What term do you use to refer to the situation where prices of property are abnormaly high due to speculation?
kenmac
#3 Posted : Wednesday, May 19, 2010 11:21:10 AM
Rank: Elder


Joined: 5/26/2009
Posts: 1,793
>> comprehensive. kudos.
......Ecclesiastes
Scubidu
#4 Posted : Tuesday, May 25, 2010 9:23:44 AM
Rank: Veteran


Joined: 9/4/2009
Posts: 700
Location: Nairobi
Kenyan consumers may be paying a high price for the large amounts of money said to be circulating in the economy outside the official channels usually captured by Central Bank Statistics, economists said.

The money captured in Central Bank of Kenya’s capital account data as errors and omissions is estimated to have risen to Sh1 billion in March 2010 from Sh154 million in January 2008, an increase of nearly 10-fold in a month.

Economists blamed the large flows for the runaway upward pricing of assets such as housing, land and cars in the past three years and ultimately for the rise in inflationary pressure during the same period.

Read more:

http://www.businessdaily.../0/-/4u4ngm/-/index.html
“We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden
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