What is the effect of inflation on luxuries?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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The major impact of inflation on luxuries is to reduce consumers' demand for luxury goods and services.

Inflation is defined as an increase in the general price level of goods and services in an economy.  When there is inflation, the general price of all goods rises and people have to spend more to purchase the same set of goods and services.  This, of course, tends to cause hardship as people have to spend more simply to get the same things.

In such a case, what is likely to happen to spending on luxuries?  Luxuries are optional purchases.  When there is high inflation and people must spend more on the necessities of life, there will of course be less money for them to use on optional purchases.  This means that people will buy fewer luxury goods.

As inflation rises, then, the demand for luxuries decreases.

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