Too high inflation is harmful to the economy and society for a number of reasons, but too low inflation is also not good – the NBM.
This is stated in the materials of the National Bank of Moldova (NBM) regarding inflation, published as part of the National Campaign for Financial Education, implemented in partnership with Expert-Grup. As noted, too high inflation is harmful to the economy and society for a number of reasons. In particular, the purchasing power of consumers, that is, the real value of money, is constantly declining. If prices rise faster than people's nominal incomes, then over time they will be able to afford fewer goods and services. Spending and investment decisions may be distorted. This may happen because high inflation may have an impact when households make purchases and businesses make investment decisions. Return on investment may be lower. Inflation affects investment decisions because higher inflation reduces the real return on investment. Businesses have to update prices more frequently, and consumers spend more time comparing prices. High inflation does not allow the economy to develop stably and is typical for weak and uncompetitive economies, etc. As the NBM notes, at the same time, too low inflation is also not a good thing, since consumers may postpone purchases if they expect prices to fall. Therefore, falling prices - a situation called "deflation" - can lead to lower spending. Businesses may respond by dismissing people or cutting wages, which in turn puts further downward pressure on demand and prices and could lead to an economic downturn. // 09.07.2024 – InfoMarket
