Inflation can be defined as the rise of cost of goods and services in a country; and therefore the cost of living. Inflation can be measured when the cost of a product/service increases over a period of time and therefore decreases the value of money in an economy. Inflation is bad for the economy because of many reasons. One of the reasons is because inflation can decrease the value of money over time and therefore decrease the purchasing power for common people. Apart from that, it tends to create a lot of uncertainty in the economy for producers and buyers.
When there is uncertainty in the economy, this leads to a lower level of investment as people are not confident enough to invest, and as a result this leads to a lower economic growth. Inflation also tends to discourage entrepreneurs to expand their businesses or to start a new business because of the high cost of goods and services. This therefore reduces competitiveness in the market which also affects international trades. When there are fewer businesses expanding or opening up, employment rate reduces which increases the level of unemployment rate.
When unemployment rates are high, the crime rates increases as people find ways to survive and this affects the safety of the society. On the other hand, a lot of resources are wasted during inflation. For example, during the inflation period, people tend to save their money and spend less; therefore companies have a lower demand rate and have a high wastage on raw materials that were purchased earlier. High inflation rates also make the economy unsustainable as it’s not strong. Source from the US Inflation Calculator, 2009.
The graph above shows the inflation rates from the year 2000-2009 in the US. As shown, there was a 3. 8% inflation rate in the year 2008, and has gone down to 0. 2% in 2009. References: US Inflation Calculator (2009) Retrieved on 28th March 2009. http://www. usinflationcalculator. com/inflation/current-inflation-rates/ Inflation fact sheet (2009) Why is Inflation Bad? Retrieved on 28th March 2009. www. reservebank. co. za/internet/Publication. nsf/LADV/C1E04C14CD41930A42257037003E1C24/$File/Factsheet2. pdf