Describe the different costs of inflation.?

Question

Describe the different costs of inflation.?

Answer 1

One thing to remember if this is for an economics class is that inflation is a rise in all prices. This includes wages, so you are completely correct to describe "costs" of inflation. So earlier answers talks about prices rising faster than income. This is not inflation.

The costs of inflation are based on holding money or wealth NOT income. If you are holding money and inflation occurs the money you are holding buys you less. If you have a saving account with fixed interest rate then you real interest rate goes down with inflation so you lose buying power.

There are some other costs, such as expectation of future, menu costs (the cost of changing the price tags to reflect higher prices), and other costs like those.

Answer 2

A consumer price index (CPI) is an index number measuring the average price of consumer goods and services purchased by households. It is one of several price indices calculated by national statistical agencies. The percent change in the CPI is a measure of inflation.

Costs depends on availability & demand of the product.

Answer 3

Inflation is the loss of value of the currency, in our case the dollar.

It is caused by creating too much money, meaning printing more than that represented by increases in assets and production.  The Fed, in it's efforts to stimulate the economy and cover the deficit spending for war and socialism, has greatly over-expanded the money supply, particularly this year but this has continued for many years at different levels.

Our current inflation rates, which are considerably higher than those reported by CPI, are such that we people cannot get ahead by savings and investment, as the inflation rate has grown considerably higher than the typical rate of return paid by investments, whether in banks or in the market.  

Inflation reduces confidence in our dollar both personally and globally.  The lost confidence is expressed in more inflation.

So the real cost of inflation is the barrier preventing the people from prosperity, or sometimes even from survival.  Inflation hurts everyone

Answer 4

I guess you mean "impacts" of inflation, since inflation is ALL about costs.  Number 1 is that one's cost-of-living can rise faster than one's earning power, lowering the overall ability to support one's lifestyle.  For example, if inflation raises the cost of going out to eat and taking in a movie, you will be less likely to do that more often than every once-in-a-while.  Because you do that, the people who own the restaurants and theaters may have to lay off workers.  And if the happens enough, the economy could be driven in the otehr direction, toward recession.  If the inflation is occurring in only (or mostly) one segment (witness the housing market), therre could arise the potential for a "bubble" and you never know how far-reaching it could be if that bubble "bursts."  Mostly, the rising costs of everything (which is what inflation IS) hurts us because we can't enjoy as many things as we do now.  Sometimes you might benefit (say, if the price of your house goes up) but overall it hurts us in the longer run.

Answer 5

Inflation uses resources to change prices and makes comparison shopping more difficult so people have a harder time finding the best buy.  Unpredictable inflation makes loaning money more risky so lenders demand a higher interest rates and this slow growth. If inflation is very high it make currency worthless and the economy can barely function.