Affects business stratergy

• Businesses producing premium goods


  • Most likely to be affected by inflation because if customers have less to spend they start to look at cheaper alternative products
  • Manufacturers of premium products can react by reducing prices (although they have to be careful not to reduce them so far that the product loses its premium image)
  • Manufacturers of premium products can react by investing heavily in advertising
• Periods of high inflation

  Can be a good time for firms to expand if interest rates are lower than the rate of inflation
• When the UK interest rate is high or fluctuating


  Firms tend to expand into countries with low, stable interest rates, as it's cheaper to borrow money for expansion there
• It's hard for a business to plan when inflation is high. It needs stable prices to make accurate forecasts