Why is inflation a problem?


Quick Answer

Inflation can be a problem when it is unexpected or very high, which can result in economic instability and people being afraid to spend money, which hinders economic growth. Furthermore, inflation can make products and services unaffordable to those on fixed-income. It can also cause creditors to lose money and create a negative impact on a country's trade.

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Full Answer

When inflation rises faster than wages, people have less purchasing power. This is especially true for retirees and others who may have a fixed income. Creditors may also lose money if they do not consider inflation in the calculation of loan interest. Inflation can also make the prices of domestic products less competitive when compared to other countries' prices. Additionally, it also costs businesses money to update labels, menus and other lists when inflation causes the prices of goods and services to rise.

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