what are the disadvanatges of having an increasing inflation rate?

Answer 1

Inflation is really monetary deflation - the name misleads you into blaming the wrong people. The money decreases in value because it is based on nothing - it used to be based on gold, so the natural tendency was for prices to go down as technology increased over time. But since most currencies left the gold standard, the central banks can increase the money supply by printing more (or just creating the money electronically in a bank account). With more money and the same amount of goods and services in the marketplace, the prices go up. Increasing ("unexpected") inflation hurts those who have loaned out money - local banks, people with money in certificates of deposits, people who bought bonds - and helps those who owe money, since the unexpected decrease in the value of the money was not figured into the interest rate. Also hurt by this are working people, whose wages are effectively decreased. The lower class people who are actually trying to move up by saving money tend to do so using risk-free investments as opposed to stocks - investments such as CDs and bonds, which are adversely affected. Anyone holding currency is losing value - small businesses tend to hold a larger than normal percentage of their assets in cash or equivalents, so they get hurt. Even the lower upper class get hurt too, because when they get dividends or sell stocks, it looks like they made more profit than they actually did - profit which they get taxed on. The ultra-rich can buy foreign stocks (not depository receipts, but actual foreign stocks) and buy into hedge funds, so they largely escape the impact with their investments.

Answer 2

Having lived through a period of high inflation I can tell you that there are winners and losers but life does go on. Rising inflation causes a redistribution of wealth.

As inflation increases so do the expectations that it will continue to go up. Labor leaders demand higher wage contracts embedding inflation over multiple years. Labor unrest is typically higher because not every city, or business can afford to play wage catch-up resulting in a higher incidence of strikes.

Interest rates go higher as lenders demand a higher component of the rate charged for inflationary expectations. So if the real rate of interest is 3% and inflation has risen to 7% per year then consumers would pay 10% [simplified example]

The cost of goods rise with inflation [by definition inflation is caused when the demand for goods outstrips the supply leading to rising prices]. Housing prices for instance rise with inflation and housing affordability declines making it very difficult for new home buyers.

If inflation is confined to a given country then it causes a lot of pressure on that country's currency value. Many countries have had currency devaluations as a result of uncontrolled domestic inflation [ Mexico was one ] leading to situations where no one wants to hold the domestic currency and trade is often in more stable currencies [i.e. US$ -- less so these days].

Inflation has a tendancy to feed on itself. As prices rise expectations adjust, embedding inflation in prices, interest rates, wages, etc. During the late sixities through the seventies inflation got way out of control helped along by the financing of the Vietnam war and the spike in oil (energy) prices.

Anyone on a fixed income is a loser in a rising inflationary environment whereas workers will generally see increasing earnings. Anyone that has borrowed long-term at a low fixed rate is a winner while the lender is a loser. Anyone that owns assets will generally see their value appreciate (all other things being equal) such as houses.

Countries with high inflation rates will see their competitive position in world markets negatively impacted as the cost of domestic goods and services rise faster than in other countries.

In extreme situations high inflation can lead to hyperinflation where the value of country's currency can change daily if not hourly. It would be like selling something for a dollar and by the time you tried to spend it, its buying power had declined to $0.90 This has occured in different countries at different points in history; typically in 3rd world countries but most notably in Germany after the first world war [In 1923 at its peak prices for goods was doubling every 49 hours]

Although there is a great deal of debate about the root causes of hyperinflation, it becomes visible when there is an unchecked increase in the money supply or drastic debasement of coinage, and is often associated with wars (or their aftermath), economic depressions, and political or social upheavals

Answer 3

With inflation comes increased interest rates. With increased interest rates comes a slowdown in production as the cost to build or buy has increased.

Answer 4

It means prices (and wages) are going up. That's bad for consumers since mostly prices rise more than wages.
And it's bad for a country's trade with other countries. Since the money is worth less than before, they have to pay more for goods imported from other countries. But on the other hand it can be good for export: the money that you'll get for your goods from other countries is worth more than before. So, roughly, you can say inflation is good for export but bad for import. Of course, things are more complex than this but then you'll have to study economics...

Answer 5

Simply put, the disadvantages of an increasing inflation rate are resources. Natural or otherwise, at some point we run out of them.

Answer 6

Inflation may increase, but the wages don't.

Answer 7

You will get inflation and pain more often. You may not be able to work out as intensely or as much as you would like. You may have to stop working out completely at least for a little while.

Answer 8

It has many disadvantages i.e. food and everything else will get expensive, increase poverty, political unrest, etc.

Answer 9

Does you salary or income go up every day or every month, i don't think so.
What happens eventually is you cannot buy things, they become too expensive.

Answer 10

Is this a market survey