Yet modern economists often have a difficult time understanding why. According to most economic models, the cost of moderate inflation is not very great. As the quote above indicates, I tend to side with the ordinary people who intensely dislike inflation. I believe that many economists take too narrow a view of how inflation affects the economy and the people who work and trade in it. Thus, I have a whole laundry list of ways in which inflation imposes costs upon people.
Inflation distorts the price system.
We measure in prices. To make good decisions, businesspeople must have accurate information. Inflation affects the price system the way static electricity affects AM radio signals. If business managers misread prices, then they are apt to misallocate resources and capital. Resource misallocation refers to producing too much or too little because of misreading the true relative price of the good being produced.