Why is inflation a problem for business?

Question

and how has the UK government policy tried to control inflation rates in the past 10 years

Answer 1

There are a number of reasons. Firstly, the operating costs of a business (e.g. buying supplies) will put pressure on the business to increase their costs - and therefore adding to the problem of inflation.

Also, there is the wage price spiral where workers demand higher income to pay for the increased cost of living. Higher income means more costs for the business and it gets added to their prices, therefore driving up inflation even more.

At present, the Bank of England's rate setting committee has been tasked with controlling inflation through interest rates.

Answer 2

Inflation means things cost more to make/distribute. The public is against paying more for items, and so it is hard to put the price up without discouraging people from buying a product. Businesses therefore make less money per item.

I don't really know who the government controls inflation rates except by saying 'the inflation rate is going to be this' and people obey. Or maybe it has something to do with buying or selling gold reserves, or releasing the gold from the reserves or something. (Do you get the impression that I really don't have a clue!?)

Answer 3

Inflation adds amount to a certain item.

Answer 4

Because when the prices go up, consumers tend to spend money only on things they need, and not on luxury items and things they can do without.

Answer 5

It raises their cost of debt and the cost for physical expansion (among other things).