Inflation means the increase in general level of prices. Due to increase in general level of price, the value or purchasing power of money declines. In other words, inflation is upward movement in the prices of goods and services. When the price of goods of services decreases, the movement is referred to as deflation. Due to deflation, the value or purchasing power of money increases.
Inflation is economically unsound, political dangerous and morally disastrous. The impact of inflation can be explained as under:
1. Inflation causes decline in purchasing power of money. It increases expenditure and discourages saving.
2. During inflation, cost of living increases which hurts the people whose income is fixed.
3. Due to inflation, purchasing power of money declines. As a result, debtors gain and creditors lose.
4. Capital formation is reduced due to inflation.
5. Due to inflation, there is continuous fall in the value of domestic currency.
6. Inflation increases black-marketing, theft, robbery, prostitution and so on. It corrupts the society.
7. Inflation brings political instability.
