Can inflation be good to the economy?

When the prices of goods and services rises from average level ,we term this as INFLATION. We generally take it as negative term with many disadvantages.

Is that it always come with negative points?  

Before elaborating the two sides,  economists generally divide it into two categories as expected and unexpected.

EXPECTED represents the inflation that people expect in future and measures that how any policy of RBI can effect the economic activity in a country.

However,  the situation of UNEXPECTED  rises when the rate of inflation is higher that what economists and regulators assumed to be.

When talking about their negative effects on the economy or social costs of inflation, expected as well as unexpected inflation makes the economy worse off. Though the conditions in case of unexpected inflation becomes even more problematic and serious. These costs may include shoeleather cost as business executives will have to put more time in cash management, inefficiency in allocation of resources,  tax distortions,  menu cost as more often restaurants will have to change their prices, futher, in case of unexpected inflation it leads to redistribution of wealth between debtor and creditors.

Though inflation has many disadvantages but it also come with major benefit. Just like the two sides of coin, the other side of inflation shows how it works for the economy. Inflation make labour markets work better. Firms generally don’t cut nominal wages of their workers and workers even don’t accept such changes . So when supply increases or demand decreases , equilibrium level of real wages falls. In order to attain equilibrium when nominal wages can’t be cut done,  inflation do the job and cuts down the real wages. Thus, in a way inflation helps to reduce employment. So in a way, inflation proves to be both good and bad for the economy.

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