Which of the following describes a negative effect of inflation?

Inflation can create uncertainty in business planning and investment decisions. When prices rise rapidly and unpredictably, businesses find it challenging to forecast costs, revenues, and profit margins. This uncertainty can lead to a reluctance to invest in new projects or expansion opportunities, as businesses may be unsure if they can cover future expenses or if their products will remain competitively priced.

As a consequence, overall economic growth can slow because businesses may hold back on innovation or hiring due to uncertain economic conditions. This impact of inflation can undermine consumer confidence as well, further complicating business strategies and planning for the future. In contrast, increased purchasing power and decreased cost of living are not typically associated with inflation; rather, inflation generally erodes purchasing power and increases living costs. Similarly, while inflation can sometimes stimulate certain areas of the economy, its negative effects often outweigh these potential benefits, making uncertainty a significant concern for businesses during inflationary periods.