Inflation

High inflation can be a deliberate problem, if prices have risen faster than salaries and nominal interest rates. In periods of dynamical rising prices, people with savings will see a decline in their real wealth. If prices have risen faster than wages, then people’s spending power will be declined. Also, briskly rising prices create disorientation and ambiguity and can cause firms to cut back on investment and allocation.

Countries which have qualified hyperinflation, have seen it as a very awful  period because all the economic confidence has been washed away, leaving people without any confidence. Hyperinflation can cause not just economic anxiety but political anxiety as people lose confidence in the economic situation of the commercial.

 Balance of payments/current account deficit

A current account loses on the balance of payments means an economy is importing more goods and services than it is exporting. To finance this current account loss, they need a balance on the financial/capital account. For many modern economies, a small current account loss is not a problem. However, some developing economies have also experienced a balance of payments catastrophe – where the large loss has to be financed by borrowing, and this situation usually leads to a dynamic declination of the currency. But this declination increases the price of every imports and reduces living standards and causes inflation.