Inflation is a phenomenon which strikes an economy when the supply of money increases without any increase in the supply of goods and services. The supply of goods and services do not increase at an equal level as the supply of money. High Inflation is a condition in which the prices of goods and services reach an all time high. The prices of goods and services increase rapidly under such a circumstance, faster than the remuneration of people. Before one can receive his/her paycheck the prices are skyrocketing. The price level during the high inflation period shoots up very high. But the increase in prices does not assure the increase in the production of goods and services. Instead the demand of goods increase and the supply decrease. The supply of money also increases. This is measured against the standard price index.
High inflation in an economy can harm the economy by affecting it in a negative way. It casts long-tem effects. High inflation reduces the incentive within the mass to save money hence it reduces the potential for long-term capital formation. The accumulation of money is perturbed by this phenomenon as the value of money hits rock bottom and people lose the spirit of saving. The consumers cannot buy the goods since the price level shots up beyond their reach. However, the high inflation also grants a positive effect to the economy by reducing the spending capability of the mass in the long-term by making goods less affordable. In this way they might be able to save some amount of money in the long run.
High inflation is not good for an economy since it dismantles the steadiness of the economy. The rising of the prices take place at an uneven rate and that makes it even more harmful. In the present times none of the economy is free from inflation but reducing the rate of inflation is probably the greatest challenge for the countries.
The prospects that the Federal Reserve would begin slowing its purchases sparked a market meltdown in 2013. The "taper tantrum", as it was dubbed, destabilized the capital markets. Now it is as if the markets have had a second tantrum, but this time US Treasuries rallied.
Professor of Economics & Director of the Earth Institute at Columbia University. Special Adviser to the UN Secretary-General on the Millennium Development Goals. Founder & co-President of the Millennium Promise Alliance.
Chancellor of the Exchequer of the United Kingdom from 1992 to 2007. Prime Minister of the UK between 2007 and 2010. Inaugural 'Distinguished Leader in Residence' at New York University. Advisor at World Economic Forum
Andrea Edwards has worked in marketing and communications all over the globe for 20 years, and is now focused on her passion – writing. A gifted communicator, strategist, writer and avid blogger, Andrea is Managing Director of SAJE, a digital communications agency, and The Writers Shop – a regional collaboration between the best business writers in Asia Pacific