Costs and Benefits of Inflation Essay

High inflation has umpteen costs pompousness erodes the value of money. When succeeding(a) prices are less predictable, intelligent spending and saving plans are harder to make. People increasingly fear that their future acquire power will decline and erode their standard of living. Inflation encourages investments that are speculative and take advantage of inflation rather than full-bodied investment. It can also create the illusion of temporary financial victor while masking fundamental economic problems. Businesses and households must spend more than time, and money, protecting themselves from the effects of cost increase costs and prices. Businesses, workers, and investors respond to signs of inflation by pushing up prices, wages, and interest rates to protect themselves. This can devolve to a vicious circle of rising inflation. Inflation can symbolize particular hardship for those whose incomes dont keep pace with the rising level of prices, especially people on fi xed incomes such as senior citizens who are receiving pensions.Low inflation has many benefits Consumers and businesses are demote able to make long-range plans because they know that their money is non losing its purchasing power year after year. Interest rates, both in titulary and real terms, are lower, encouraging investment to improve productivity and allowing businesses to win without raising prices. Sustained low inflation is self reinforcing. Businesses and individuals do not react so quickly to short-term price pressures by seeking to raise prices and wages if they are confident that inflation is under long-run control. This contributes to keeping inflation low.