What is one disadvantage of high inflation rates?

High inflation rates lead to increased prices for goods and services over time, which means that each unit of currency buys fewer items than it did previously. This phenomenon is known as decreased purchasing power. When inflation is high, individuals and families find that their income does not stretch as far as it once did, making it more difficult to afford the same level of consumption they previously enjoyed.

For instance, if the inflation rate is significantly higher than wage growth, people may struggle to cover their basic expenses like food, housing, and transportation. This reduction in purchasing power can impact individuals' overall financial well-being, forcing them to cut back on spending or seek additional sources of income, which can increase financial stress.

In contrast, the other options highlighted are positive effects that do not accurately reflect the disadvantages of high inflation. While savings account interest rates might increase in response to inflation, it often does not keep pace with the rate of inflation itself, resulting in a net loss in value. Similarly, inflation does not typically boost purchasing power; rather, it erodes it. Finally, high inflation complicates rather than simplifies budgeting, as households must adjust their expectations and calculations frequently to account for the rising costs of living.