LaQuan Howell
Embry-Riddle Aeronautical University
Abstract Economist for a long time have argued about the causes and implications of inflation. This research aims at identifying the various negative implications that inflation causes. The research indicated that inflation causes negative effects like increase in prices of goods and services, interrupted purchasing power of consumers, and slow economic growth.
Introduction Inflation is defined as the decrease in the value of money. It is the continued increase in the level of prices for products and services especially over a short duration of time. This means that the value of a currency does not stay constant during period of inflation, and the purchasing power of consumers’ declines. Thus, whatever consumers earn, will buy less of a good or service. When inflation increases it results to an increase in the prices of commodities, and this may bring about employees demanding an increase in wages. This normally translates to a decrease in profit for the company. Consumers will have less amount of money to use; this could translate to a decrease in company sales.
Disadvantages of inflation Inflation is usually considered to be an issue when the rate rises above two percent. The higher the rate of inflation is, the more the problems it causes. Inflation affects the menu costs of goods and services. Menu cost is the charge of changing prices. When the menu cost in a company becomes too high, a firm suffers from a decrease in profit earned. Inflationary pressure reduces economic growth in a country due to the high charges on prices of goods and services (Robert, 1993). When inflation increases, it tends to became more unpredictable. Thus, it becomes more complicated for companies to
