If central banks increase their inflation target, it could lead to higher prices for goods and services, which would decrease the purchasing power of an average person’s savings. This means that people would have to spend more money to buy the same goods and services they could previously afford.
An example of this occurred in the 1970s, when inflation reached high levels in many countries. This led to a decrease in purchasing power, and people’s money could not buy as much as it could before. The economy also slowed down as a result of high inflation, as businesses had to raise prices to keep up with the increased costs of production, which in turn led to decreased consumer spending.
In addition to the decrease in purchasing power and the slowing of the economy, high inflation can also lead to uncertainty and instability in financial markets. When the general price level is rising rapidly, it becomes more difficult for individuals and businesses to make sound financial decisions.
Also, high inflation can also have a negative impact on those on fixed incomes, such as retirees, as their purchasing power declines and their savings lose value.
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