Is inflation always bad?

It depends on how it comes about. Cost push inflation, i.e. when the reason is due to higher costs of production and reduced short-run aggregate supply (SRAS), is negative, as the overall output level, and subsequently economic growth - the primary objective - is reduced. However, if it is demand push inflation, then inflation is merely the result of something positive. Increased aggregate demand (AD) due to higher consumption, etc, will cause increased economic growth, and place upwards pressure on the price level, however the negative effect of this may be offset by the potentially higher wages and income associated with economic growth. Also, assuming it remains within 1-3% - the BoE's target range - it is okay.(This would be done with the use of diagrams)

Answered by Abbas A. Economics tutor

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