There are many Disadvantages of inflation.

Are there any advantages of inflation?

Firstly it is interesting to note the government's target for inflation is CPI = 2% +/- 1. They have a target of 2% rather than 0%

If inflation is 0% or lower (deflation there can be several disadvantages)

• Deflation can cause lower spending. The value of money is increasing so people wait before buying goods.
• A small amount of inflation makes it easier for the relative price of goods to update.
• Deflation can cause real wages to rise above the equilibrium level. Workers resent a cut in nominal wages. Therefore a moderate amount of inflation enables an increase in nominal wages, without causing excessive real wage rises.

to summarise there are some advantages of having a low rate of inflation e.g. 2%. However, as inflation rises above 2% we start to see the disadvantages outweighing the advantages
Problems recovering from recession

Labels: inflation