- Savings:
- In galloping inflation, people are unwilling to save in banks.
- This is because nominal interest rates are lower than inflation.
- Purchasing power of money erodes, compromising its “store of value” function.
- Investment:
- In galloping inflation, businesses are unwilling to invest.
- Lending rates are high, and demand declines.
- High inflation creates uncertainty, deterring long-term investment.
- Consumption:
- High inflation reduces purchasing power, impacting consumption.
- People may hoard goods to avoid future price increases.
- Deflation (general decline in prices) makes people postpone purchases.
- This reduces demand and slows down the economy.