costs and benefits of inflation - cost stability

• Low and Stable Inflation


  Macro objective to maintain controlled inflation for economic stability
• High Inflation Costs


  Loss of purchasing power, erodes savings, shoe leather costs, export competitiveness
• Purchasing Power Erosion


  Reduction in the value of money affecting buying power
• Real Terms


  Adjusting for inflation to reflect actual value
• Shoe Leather Costs


  Time and effort spent seeking higher interest rates on savings
• Export Competitiveness


  Ability of a country's goods to compete globally
• Hyperinflation Risk


  Anticipated high inflation leading to uncontrollable price spirals
• Wage-Price Spiral


  Cycle where rising wages lead to higher prices, fueling inflation
• Consumer Anticipation


  Buying goods earlier due to expected future price increases
• Menu Costs


  Expense of updating prices due to high inflation
• Fiscal Drag


  Rising income pushing individuals into higher tax brackets
• Progressive Income Tax


  Tax system where higher incomes are taxed at higher rates
• Inflationary Noise


  Volatility in inflation rates disrupting market price signals
• Inflation


  Volatile rise and plateau in prices causing economic uncertainty
• Economic Uncertainty


  Confusion leading to delayed consumption and investment
• Workers' Bargaining Power


  Ability to negotiate higher wages due to inflation
• Consumption Behavior


  Natural spending patterns without anticipation of deflation
• Firms' Output Increase


  Encouraged by low, stable inflation to raise prices and output
• Unemployment Mitigation


  Low inflation helps firms retain workers during recessions
• Fiscal Windfall


  Government benefits from increased tax revenue during inflation
• Debt Value Reduction


  Inflation reduces the real value of debts
• Public Sector Impact


  Government spending may decrease in real terms during inflation
• Evaluation of Inflation


  Assessing when inflation costs outweigh benefits
• Demand-Pull Inflation


  Inflation driven by increased consumer demand
• Cost-Push Inflation


  Inflation caused by rising production costs
• Stagflation


  Stagnant growth with high inflation and unemployment
• Anticipated Inflation


  Predicted inflation leading to economic instability
• Hyperinflation Concerns


  Extreme inflation spiraling out of control