Negative effects of Inflation

All the world economies experience inflation to a certain extent or the other; no single country is exempt from the same. One of the side effects of inflation is the impact it has on the economy as a whole and is part of the whole inflation-deflation cycle. And it is during the inflation period, that the growth ramps up, but it also makes the economy less competitive than most.

Negative effects of Inflation

A little inflation is often considered to be a good thing and is considered to be part of the normal process. However, Inflation, which incidentally can be hard to control, can impact the economy in the long run. A high inflation can pose a risk to growth and even cause the cost of basic products like food, oil, and water to shoot up along with medicine, essential services among others.

So the question you need to ask yourself is whether Inflation is necessary? The short answer is yes, for inflation can provide an impetus to growth which is why a little inflation is not just necessary but often viewed positively. The only downside is that without taking additional measures, the government often runs the risk of runaway inflation. Runaway inflation is what happened in places like Bolivia which lost 99% of its monetary value in less time than it took for the earth to complete one revolution around the sun. The fact remains that several governments have gotten their economic policies wrong, some more spectacularly than others and Bolivia is one such case. The rampant inflation was in four figures and the cost in human lives, employment, health, and economy is just incalculable. The scars of going through hyperinflation often last long which is why most governments pay special attention to the latest inflation data so that they do not make the same mistake.

The other downside to inflation is the resulting impact it can have on society as a whole; as the cost of basic prices shoots up, people start hoarding wealth since they would no longer trust the banks. While this is to be expected, this mistrust in the economy can be acute, especially during periods of hyperinflation; this eventually results in the breakdown of law and order. For example, Hyperinflation, where the prices of all goods rose by nearly 50% in a month was what happened, at the end of both world wars. Germany, in particular, was heavily impacted and this led to large-scale suffering for the survivors of the war, where it became next to impossible to even purchase basic food products like bread.  At last count, there were at least 57 documented cases of hyperinflation since the 17th century which only goes on to prove that inflation can indeed have a large negative impact on both economy and society as a whole. This is why governments must be more proactive when it comes to curbing a resurgent inflationary trend and to bring it down to reasonable levels and thereby taking effective measures to protect the economy.

 

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