YOU MAY THINK INFLATION MIGHT BE ALL BAD... HERE'S SOME OF THE GOOD.
As we all know inflation occurs when there is an increase in the standard price level. Though it's terrible most of the time it also has its advantages. They include:
- Relative price adjustment
- Wages adjustment
- Growth boost
- Preferrable than deflation
1. RELATIVE PRICE ADJUSTMENT: Relative prices have been adjusted easily due to inflation. One currency that makes a perfect example is the Eurozone, Because of the low inflation in Europe specifically in Southern European countries like Spain and Italy they had to cut all relative just to ensure that competitiveness was restored. If the Eurozone had just had a kind of moderate inflation, it would have been easier to regain competitiveness without going through deflation.
2. WAGES ADJUSTMENT: Workers hate a wage cut But it brings up a good argument to state that moderate inflation makes it so much easier to adjust wages. However, if average earnings are growing due to mild inflation, it is simpler to raise the pay of productive workers. Unproductive workers may have their salaries withheld resulting in a real wage decrease. If we had 0% inflation, we may see greater real wage unemployment since businesses are unable to decrease pay to attract workers.
3. GROWTH BOOST: The economy may be in a slump during periods of exceptionally low. Aiming for a higher rate of inflation may result in serious economic growth. Well, not all economists would support that view. Some, though, would prefer more inflation if the economy remained in a lengthy recession.
4. PREFERRABLE THAN DEFLATION: One thing worse than inflation is deflation, Price declines might increase the real debt load and discourage consumption and investment. One of the things that caused the Great Depression which happened in the 1930s was deflation, I really hope that doesn't happen again.