# Costs of inflation

Source: https://projectalevel.co.uk/economics/macro_economics/costs_of_inflation

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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.