Cost of Inflation

*Increase in Income Inequality
- often results in the rich getting richer and the poor getting poorer

*Trade Deficit: due to less exports and more imports
- there are less exports due to less goods able to be produced in the economy
- there are also more imports due to the difference of currency values between countries

*“Shoe Leather Costs”: opportunity cost of holding cash
- people will spend more time deciding whether to buy now, buy later, or not at all
- people also make more visits to their banks and this wears out their shoe soles!

*“Menu Costs”: cost to change signage
- includes the extra costs to companies to change written information on prices
- this is very relevant to companies with large amounts of advertising like flyers or catalogues

*Reduction in Investment
- an original investment’s value will be worth less in the market after inflation
- especially if interest rates are negative

*Business Cycles
- often increases the amount of businesses opening and closing due to fluctuations in things like costs and prices of goods
- uncertainty about the future often makes entrepreneurs hesitant about starting new businesses

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