The efficient allocation of resources is dependent on economic agents being aware of relative price changes.

High inflation makes it more difficult to tell whether price changes are part of a general inflationary rise or represent changes in relative prices.

The inefficient allocation of resources caused by high inflation is estimated to reduce growth over time.

Professor Robert Barro has estimated that an increase in average inflation of ten percentage points reduces the annual growth in real gross domestic product per head by 0.2 to 0.3 percentage points (Bank of England Quarterly Bulletin, May 1995).

High inflation relative to other countries, should the exchange rate not depreciate sufficiently to compensate, will also make exports less competitive and imports more competitive, threatening higher unemployment and lower growth.

High inflation tends to erode the value of savings while those on relatively fixed incomes are unable to increase their earnings fast enough to match the increase in the price level.

In contrast, borrowers see the value of their debt shrink.

The cost to economic agents of the time and effort spent trying to overcome the effects of high inflation.

Economic agents will spend more time seeking ‘value for money’ since they will have less idea of what is a reasonable price for the good or service they wish to purchase.

In addition, the opportunity cost of holding cash will be greater relative to interest bearing bank deposits.

More time is spent on trips to the bank or building society to obtain cash and more time is spent trying to maximise interest income.

The cost of regularly reprinting literature with new prices or interest rates.