Consequences of inflation :

Government wants a low rate of inflation as it has negative effects on the economy and society
at large.
1. Loss of purchasing power or a fall in the value of money : Money
will buy less product, a person with fixed and low income will experience a fall in their
standard of living.

2. Fall in the value of savings : It discourages savings which means people's

savings worth less than before. Less money to save leads to a fall in investment and has
negative implications on economic growth.

3. Affect lenders or borrowers : Inflation reduces the real value of a loan as the
money worth less than they have borrowed. As such lender lose as the value of money
worth less, for example old people who depends on pensions

4. Uncertainty : Firms are discouraged to invest as there would be lower economic

growth in the future concerning cost and revenue.

5. Unemployment : There is a rise in price and demand will decrease. Businesses

tend to reduce their output and workforce size.

6. Government spending : They will need to pay more for goods and services if
public employees' income rises and welfare payment is index linked then the
government has to spend more.
7. Anticipated or Unanticipated : If inflation is anticipated, people will be ready
to face the increase in price, whereas if it is unanticipated, the effect will be unexpected
and the economy will not be ready to face an increase in price. As a result,the
consequences may be dangerous for the economy.

8. Degree of inflation : The consequences of inflation depend highly on the degree.

If the rate of inflation is categorised as mild,the effects will be positive for the economy.
Mild inflation acts as a tonic and boosts up economic activities in terms of higher
production and higher profit.
When the economy faces hyperinflation the effects are quite negative as consumer
demand falls, high level of unemployment due to closure of businesses. Also, people
lose confidence in money.
9. Group of people : In periods of inflation, there are some groups of people who
gain in terms businessmen, rich people,especially people who hold assets.
In periods of inflation there are also some people who lose in terms of fixed income
earners,pensioners,poor people,and lenders.

NOTE : POOR PEOPLE BECOME POORER, RICH BECOME RICHER