Prices
-The main problem of inflation is that prices are rising. The rise in prices reduces the purchasing power of money. This means that people cannot buy as much with their income. Wages / Salary
-When prices are rising, workers need to increase their wages to compensate for the loss in purchasing power. When the wages are increasing, the company will respond by increasing the price of their goods or services. (Wages Spiral)
Exports
-When inflation is higher at home than in other countries, firms / businesses will have difficulty in doing export, because the cost of export is high.
Unemployment
-Falling exports can also result in unemployment especially for people working in a company which does export.
Menu Cost
When prices are increasing fast, companies will have to update their prices frequently, new brochures will have to be printed, websites updated, and sales staff informed.
Shoe Leather Cost
-When prices are increasing fast, consumers will have to spend more time looking for the lowest prices or the best value for money.
Uncertainty
-When prices are increasing fast, firms will have difficulty in making long term planning. Most companies will postpone or cancel their investment.
Business and Consumer Confidence
-Inflation will cause consumers and businesses are more likely to save their money. This will reduce demand which will lower economic growth.