Projectrevision.co.uk | Alevel coursework Project Alevel... Alevel subject: Biology | Business studies | Computing | Economics | Geography | Maths | Physics

Economics> Macro-economies> Costs of inflation

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.