Inflation decreases the purchasing power of money, meaning that the same amount of money will buy less in the future than it does today.
Increases Cost of Living
As prices for goods and services increase due to inflation, the cost of living also increases.
Decreases Savings Value
Inflation decreases the value of savings, as the money in savings accounts earns less interest than the rate of inflation, meaning that it loses value over time.
Increases Debt
Inflation can increase the burden of debt, as borrowers may have to pay more in interest to service their loans.
Increases Taxes
Inflation can increase taxes, as tax brackets and deductions are often adjusted for inflation.
Increases Investment Risk
Inflation increases the risk of investments, as stocks and bonds may not perform as well when inflation is high.
Affects Different Groups Differently
Inflation can have a disproportionate impact on certain groups, such as retirees and low-income individuals, who may have a harder time adjusting to higher prices.
Interest Rate Increases
High inflation can lead to increases in interest rates as central banks try to curb inflation by making borrowing more expensive.
Lead to Currency Devaluation
High inflation can lead to a devaluation of a country's currency, making imports more expensive and exports less competitive in the global market.