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Discuss the economic consequences of inflation? In this essay the economic consequences of inflation on the economy will be considered. Inflation is a continuous rise in average price levels including wholesale and factor prices. There are two main causes of inflation; cost push and demand pull inflation. Cost push inflation occurs when the price level is pushed up by sustained increases in the cost of production which is independent of aggregate demand. Demand pull inflation occurs when price increases as a result from an excess of demand over supply. Firstly, high Inflation erodes the real value of people's savings. It transfers wealth from savers to borrowers. Unanticipated inflation causes arbitrary redistribution of wealth and incomes meaning any wealth that does not rise rapidly with inflation loses its real value. This happens when people do not predict inflation and fix index linked pay, prices and contracts. Secondly, inflation leads to people bringing forward their...

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