<blockquote>
<p>Do we have an authoritative source explaining why inflation is bad and should be prevented?</p>
</blockquote>
<p>Yes, for example Mankiw Macroeconomics is peer reviewed textbook (hence it is arguably authoritative source) mentions several negative effects (see pp 102):</p>
<blockquote>
<p>Consider first the case of expected inflation. ... One cost is the distortion of the inflation tax on the amount of money people hold. As we have already discussed, a higher inflation rate leads to a higher nominal interest rate, which in turn leads to lower real money balances. If
people are to hold lower money balances on average, they must make more frequent trips to the bank to withdraw money—for example, they might withdraw \$50 twice a week rather than \$100 once a week. The inconvenience of
reducing money holding is metaphorically called the shoeleather cost of
inflation, because walking to the bank more often causes one’s shoes to wear
out more quickly.</p>
</blockquote>
<blockquote>
<p>A second cost of inflation arises because high inflation induces firms to change
their posted prices more often. Changing prices is sometimes costly: for example, it may require printing and distributing a new catalog. These costs are called
menu costs, because the higher the rate of inflation, the more often restaurants
have to print new menus.</p>
</blockquote>
<blockquote>
<p>A third cost of inflation arises because firms facing menu costs change prices
infrequently; therefore, the higher the rate of inflation, the greater the variability in relative prices. For example, suppose a firm issues a new catalog every January. If there is no inflation, then the firm’s prices relative to the overall price level are constant over the year. Yet if inflation is 1 percent per month, then from the beginning to the end of the year the firm’s relative prices fall by 12 percent. Sales from this catalog will tend to be low early in the year (when its prices are relatively high) and high later in the year (when its prices are relatively low). Hence, when inflation induces variability in relative prices, it leads to microeconomic inefficiencies in the allocation of resources.</p>
</blockquote>
<blockquote>
<p>A fourth cost of inflation results from the tax laws. Many provisions of the tax
code do not take into account the effects of inflation. Inflation can alter individuals’ tax liability, often in ways that lawmakers did not intend.</p>
</blockquote>
<blockquote>
<p>A fifth cost of inflation is the inconvenience of living in a world with a changing price level. Money is the yardstick with which we measure economic transactions. When there is inflation, that yardstick is changing in length.</p>
</blockquote>
<blockquote>
<p>Unexpected inflation has an effect that is more pernicious than any of the costs
of steady, anticipated inflation: it arbitrarily redistributes wealth among individuals. You can see how this works by examining long-term loans. Most loan agreements specify a nominal interest rate, which is based on the rate of inflation
expected at the time of the agreement. If inflation turns out differently from
what was expected, the ex post real return that the debtor pays to the creditor differs from what both parties anticipated. On the one hand, if inflation turns out
to be higher than expected, the debtor wins and the creditor loses because the
debtor repays the loan with less valuable dollars. On the other hand, if inflation
turns out to be lower than expected, the creditor wins and the debtor loses
because the repayment is worth more than the two parties anticipated.</p>
</blockquote>
<blockquote>
<p>Unanticipated inflation also hurts individuals on fixed pensions. Workers and
firms often agree on a fixed nominal pension when the worker retires (or even
earlier). Because the pension is deferred earnings, the worker is essentially providing the firm a loan: the worker provides labor services to the firm while
young but does not get fully paid until old age. Like any creditor, the worker is
hurt when inflation is higher than anticipated. Like any debtor, the firm is hurt
when inflation is lower than anticipated.</p>
</blockquote>
<blockquote>
<p>Finally, in thinking about the costs of inflation, it is important to note a widely documented but little understood fact: high inflation is variable inflation. That
is, countries with high average inflation also tend to have inflation rates that
change greatly from year to year</p>
</blockquote>
<blockquote>
<p>Has anyone pinpointed the main root cause or mechanism by which high inflation causes disaster?</p>
</blockquote>
<p>Yes, for example the work on the menu cost explanation was done by Mankiw, Weiss and others. Each of the areas mentioned above are quite broad, it is not possible to give justice to every scholar who contributed to these discoveries in SE format.</p>
<blockquote>
<p>Do we have something similar to an &quot;official&quot; explanation?</p>
</blockquote>
<p>The textbook explanation can be also considered an &quot;official&quot; explanation. There is no official authority in science but the above mentioned explanations are generally accepted by majority of economists.</p>

CC BY-SA 4.0
2022-08-11T23:26:39.043Z
I have accepted this answer as it seems to be the correct answer according to comments to the question, Wikipedia, etc. I was expecting the main reason in malinvestment (or decision making as mentioned by @BrsG). In particular, high inflation promotes investment and penalizes saving. Similar to the precision-recall tradeoff, we may expect more investment to result in a higher malinvestment ratio, destroying wealth.
Trylks
CC BY-SA 4.0
2022-08-11T01:59:07.803Z
2022-08-11T01:59:07.803Z
1muflon1
<p>We all know high inflation is bad. Bad things happen. However:</p>
<ul>
<li>Do we have an authoritative source explaining why inflation is bad and should be prevented?</li>
<li>Has anyone pinpointed the main root cause or mechanism by which high inflation causes disaster?</li>
<li>Do we have something similar to an &quot;official&quot; explanation?</li>
</ul>

CC BY-SA 4.0
2022-08-10T14:48:03.057Z
Does this answer your question? [Is zero inflation desirable?](https://economics.stackexchange.com/questions/5861/is-zero-inflation-desirable)
Giskard
CC BY-SA 4.0
2022-08-10T14:49:49.487Z
I guess the answers there list arguments against very low, not very high inflation, so they may not, in fact, answer your question.
Giskard
CC BY-SA 4.0
2022-08-10T14:57:35.913Z
The target is about 2% inflation, which seems to be an approximated ideal based on experience, not causally explainable. A deep learning model could reach the same conclusion. When asked "why?", it could answer: "bad things happen otherwise". Then, we would have to ask "why?" 5 times (approx) to reach the root cause. That root cause is what I want. Note: it may not exist "officially" or "authoritatively". Please note that I am not asking about what "bad things" happen either.
Trylks
CC BY-SA 4.0
2022-08-10T15:12:06.763Z
The ultimate "root" cause is the boundary conditions of the universe, which resulted in the neural networks that power our brains (: I hope someone will be able to give you a more medium level cause for why high inflation is bad.
Giskard
CC BY-SA 4.0
2022-08-10T15:22:37.617Z
That one flies miles above my head, TBH. I hope my previous comment mixing up AI explainability with the 5 whys technique is more helpful and clarifying than confusing. I have an extraordinary ability to be confusing, TBH. In any case, thanks a lot for your interest.
Trylks
CC BY-SA 4.0
2022-08-10T15:57:44.080Z
I am not sure what you ask to be honest. In the question you ask for the main cause why inflation is bad. In the comment you mention you are not interested in what bad things happen. The reason you should not ingest ricin is that it is a deadly poison that kills you. Or are you interested in something like "Ricin is a glycoprotein that interferes with protein synthesis in the cell (causing cell death). However, even in this example the main problem is the bad thing that happens (death).
Alex
CC BY-SA 4.0
2022-08-10T17:46:11.697Z
The 2% target is random to some degree. Note also that emerging economies often have higher targets. They key reasoning seems to be that "high" inflation, especially when inflation is very volatile, makes economic decision making difficult. See also here: https://www.frbsf.org/education/publications/doctor-econ/1998/june/inflation-economic-growth/#:~:text=When%20inflation%20is%20high%2C%20currency,holdings%20of%20such%20money%20balances.
BrsG
CC BY-SA 4.0
2022-08-10T21:32:04.153Z
I agree with @Alex. Generally, I think the [Wikipedia](https://en.wikipedia.org/wiki/Inflation#Negative) article about inflation mentions plenty of reasons for inflation (the root cause) as well as the bad things that happen (why it is bad).
AKdemy
<reference-request><inflation>
Do we have an authoritative reason why inflation is bad?
Trylks
# Do we have an authoritative reason why inflation is bad?

(Asked by: username_0 on 2022-08-10)

We all know high inflation is bad. Bad things happen. However:

* Do we have an authoritative source explaining why inflation is bad and should be prevented?
* Has anyone pinpointed the main root cause or mechanism by which high inflation causes disaster?
* Do we have something similar to an "official" explanation?

**Tags:** reference-request, inflation

> **Comments:**
> **username_1**: Does this answer your question? [Is zero inflation desirable?](https://economics.stackexchange.com/questions/5861/is-zero-inflation-desirable)  
> **username_1**: I guess the answers there list arguments against very low, not very high inflation, so they may not, in fact, answer your question.  
> **username_0**: The target is about 2% inflation, which seems to be an approximated ideal based on experience, not causally explainable. A deep learning model could reach the same conclusion. When asked "why?", it could answer: "bad things happen otherwise". Then, we would have to ask "why?" 5 times (approx) to reach the root cause. That root cause is what I want. Note: it may not exist "officially" or "authoritatively". Please note that I am not asking about what "bad things" happen either.  
> **username_1**: The ultimate "root" cause is the boundary conditions of the universe, which resulted in the neural networks that power our brains (: I hope someone will be able to give you a more medium level cause for why high inflation is bad.  
> **username_0**: That one flies miles above my head, TBH. I hope my previous comment mixing up AI explainability with the 5 whys technique is more helpful and clarifying than confusing. I have an extraordinary ability to be confusing, TBH. In any case, thanks a lot for your interest.  
> **username_2**: I am not sure what you ask to be honest. In the question you ask for the main cause why inflation is bad. In the comment you mention you are not interested in what bad things happen. The reason you should not ingest ricin is that it is a deadly poison that kills you. Or are you interested in something like "Ricin is a glycoprotein that interferes with protein synthesis in the cell (causing cell death). However, even in this example the main problem is the bad thing that happens (death).  
> **username_3**: The 2% target is random to some degree. Note also that emerging economies often have higher targets. They key reasoning seems to be that "high" inflation, especially when inflation is very volatile, makes economic decision making difficult. See also here: https://www.frbsf.org/education/publications/doctor-econ/1998/june/inflation-economic-growth/#:~:text=When%20inflation%20is%20high%2C%20currency,holdings%20of%20such%20money%20balances.  
> **username_4**: I agree with @username_2. Generally, I think the [Wikipedia](https://en.wikipedia.org/wiki/Inflation#Negative) article about inflation mentions plenty of reasons for inflation (the root cause) as well as the bad things that happen (why it is bad).  

---

## 1 answers

### Answer by username_5 on 2022-08-11. Score: 3 | Accepted answer

> Do we have an authoritative source explaining why inflation is bad and should be prevented?

Yes, for example Mankiw Macroeconomics is peer reviewed textbook (hence it is arguably authoritative source) mentions several negative effects (see pp 102):

> Consider first the case of expected inflation. ... One cost is the distortion of the inflation tax on the amount of money people hold. As we have already discussed, a higher inflation rate leads to a higher nominal interest rate, which in turn leads to lower real money balances. If
> people are to hold lower money balances on average, they must make more frequent trips to the bank to withdraw money—for example, they might withdraw \$50 twice a week rather than \$100 once a week. The inconvenience of
> reducing money holding is metaphorically called the shoeleather cost of
> inflation, because walking to the bank more often causes one’s shoes to wear
> out more quickly.

> A second cost of inflation arises because high inflation induces firms to change
> their posted prices more often. Changing prices is sometimes costly: for example, it may require printing and distributing a new catalog. These costs are called
> menu costs, because the higher the rate of inflation, the more often restaurants
> have to print new menus.

> A third cost of inflation arises because firms facing menu costs change prices
> infrequently; therefore, the higher the rate of inflation, the greater the variability in relative prices. For example, suppose a firm issues a new catalog every January. If there is no inflation, then the firm’s prices relative to the overall price level are constant over the year. Yet if inflation is 1 percent per month, then from the beginning to the end of the year the firm’s relative prices fall by 12 percent. Sales from this catalog will tend to be low early in the year (when its prices are relatively high) and high later in the year (when its prices are relatively low). Hence, when inflation induces variability in relative prices, it leads to microeconomic inefficiencies in the allocation of resources.

> A fourth cost of inflation results from the tax laws. Many provisions of the tax
> code do not take into account the effects of inflation. Inflation can alter individuals’ tax liability, often in ways that lawmakers did not intend.

> A fifth cost of inflation is the inconvenience of living in a world with a changing price level. Money is the yardstick with which we measure economic transactions. When there is inflation, that yardstick is changing in length.

> Unexpected inflation has an effect that is more pernicious than any of the costs
> of steady, anticipated inflation: it arbitrarily redistributes wealth among individuals. You can see how this works by examining long-term loans. Most loan agreements specify a nominal interest rate, which is based on the rate of inflation
> expected at the time of the agreement. If inflation turns out differently from
> what was expected, the ex post real return that the debtor pays to the creditor differs from what both parties anticipated. On the one hand, if inflation turns out
> to be higher than expected, the debtor wins and the creditor loses because the
> debtor repays the loan with less valuable dollars. On the other hand, if inflation
> turns out to be lower than expected, the creditor wins and the debtor loses
> because the repayment is worth more than the two parties anticipated.

> Unanticipated inflation also hurts individuals on fixed pensions. Workers and
> firms often agree on a fixed nominal pension when the worker retires (or even
> earlier). Because the pension is deferred earnings, the worker is essentially providing the firm a loan: the worker provides labor services to the firm while
> young but does not get fully paid until old age. Like any creditor, the worker is
> hurt when inflation is higher than anticipated. Like any debtor, the firm is hurt
> when inflation is lower than anticipated.

> Finally, in thinking about the costs of inflation, it is important to note a widely documented but little understood fact: high inflation is variable inflation. That
> is, countries with high average inflation also tend to have inflation rates that
> change greatly from year to year

> Has anyone pinpointed the main root cause or mechanism by which high inflation causes disaster?

Yes, for example the work on the menu cost explanation was done by Mankiw, Weiss and others. Each of the areas mentioned above are quite broad, it is not possible to give justice to every scholar who contributed to these discoveries in SE format.

> Do we have something similar to an "official" explanation?

The textbook explanation can be also considered an "official" explanation. There is no official authority in science but the above mentioned explanations are generally accepted by majority of economists.

> **Comments:**
> **username_0**: I have accepted this answer as it seems to be the correct answer according to comments to the question, Wikipedia, etc. I was expecting the main reason in malinvestment (or decision making as mentioned by @username_3). In particular, high inflation promotes investment and penalizes saving. Similar to the precision-recall tradeoff, we may expect more investment to result in a higher malinvestment ratio, destroying wealth.  

---

