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How does Inflation Affect the Economy:
When inflation occurs, the first to be hit are businesses as it becomes more expensive to produce and manufacture goods and services. This in turn results in increased prices of the finished goods and services. In addition, the employees working in these businesses start demanding for wage hike to maintain their real standard of living which further push up the prices.
The economy also suffers as exports become more expensive. On the other hand, imports become cheaper and this leads to people purchasing imported goods and items. This has a drastic effect on all domestic companies and businesses as they are forced to layoff workers to try and compete with imports and the only way they can reduced their unit costs is by reducing the workforce. In the end, unemployment increases and economic growth is adversely affected.
However, inflation gives rooms to the central bank to maneuver since its primary tool for controlling the money supply is by setting the lowest interest rate in an economy. However, the central bank is controlled by the government and there is often political pressure to increase the money supply to pay for government services and this tends to create more inflation and decreases the net money owed by the government in previously negotiated contractual agreements and in debt.
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Inflation is usually referred to general increase in prices of goods and services, and many economists have offered several ways to solve the problem of inflation. It may not be possible to completely eradicate inflation but by using the methods suggested by economists, one can limit inflation to a certain extent. 
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