Money loses its value
- People lose confidence in money as the value of savings is reduced.
- This is particularly the case with rapid inflation.
Inflation can get out of control
- Price increases lead to higher wage demands as people try to maintain their living standards.
- Businesses then increase prices to maintain profits and so it goes on.
Consumers and businesses on fixed income lose out
- They lose out because the real value of their incomes falls.
Employees in poor bargaining positions lose out
- People in low paid jobs with little or no trade union protection.
Inflation favours borrowers at the expense of savers
- This is because inflation erodes the real value of existing debts.
- Also the rate of interest on loans may not cover the rate of inflation.
It disrupts business planning
- Although businesses are aware of what has happened to prices in the past, they cannot be certain what ill happen in the next few months and years.
- Budgeting becomes difficult and this may affect investment.
