Inflation costs take hidden toll on American society. Here’s how.

High inflation doesn t just leave you with less money in your wallet and struggling to pay bills.

It also imposes long-term costs on society and the economy by forcing consumers to invest less, negotiate wages more frequently and devote time and energy to coping with rapidly rising prices, according to a new paper by the Federal Reserve Bank of Cleveland.

The upshot: skewed markets and an even greater loss of purchasing power for consumers, says the analysis by Cleveland Fed senior research economist Jean-Paul L Huillier Bowles and research analyst Martin DeLuca.

“These frictions … suggest that inflation imposes significant costs on society,” the authors argue in the paper, titled The Long-Run Costs of Higher inflation.

In an economy without such disruptions, prices are determined by the law of supply and demand: If demand for a good or service outstrips the supply, prices will rise, and vice versa.

via www.usatoday.com

Analysis: True.

If price increases were perfectly predictable, they would be priced in to everything, and so, no problem. It’s the uncertainty of price increases that’s the problem.