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--- OVERALL ECONOMY ---

(1) Inflation erodes international competitiveness. Exports cost more abroad. This can cause a decrease in demand for exports. That in turn can lead to a decrease in demand for the currency and to a devaluation of the currency. The devaluation may restore exports, but at the cost of making imports more expensive, thus increasing inflation again! It is because inflation erodes international competitiveness that most governments make controlling inflation the central pillar of their economic policy.

(2) Hyperinflation: if inflation gets totally out of control (in the upward direction), it can grossly interfere with the normal workings of the economy, hurting its ability to supply.

(3) Inflation usually leads to higher nominal interest rates that should have a deflationary effect on GDP.

(4) To stop people borrowing monies, economy would be introduced with higher interest rates from the Govt or controlling bodies.

--- ON INDIVIDUAL ---

(1) It redistributes income from people on fixed incomes (that do not rise with inflation) to people on variable incomes (that do rise with inflation). Since most people with fixed incomes are poor (for example, receive social benefits that do not rise in line with inflation), and people with variable incomes are relatively richer, the effect of income is to redistribute income from the poor to the rich.

(2) Shoe leather costs: Because the value of cash is eroded by inflation, people will tend to hold less cash during times of inflation. This imposes real costs, for example in more frequent trips to the bank. (The term is a humorous reference to the cost of replacing shoe leather worn out when walking to the bank.)

(3) Americans always fear that inflation would reduce their life-style and standard of living with prices always going higher. This makes them shop less and there is a tentitive psycology of the consumer which results in laziness at work, less productivity and more tension on the individual as well.