Rising prices causes worsening poverty as the essentials for survival become more expensive and thus less attainable to those with low incomes. In an economy where unemployment and underemployment is increasing, family incomes are less able to purchase the basic requirements such as staple foodstuffs. Rising prices creates uncertainty . In a climate of uncertainty both domestic and foreign entrepreneurs will be reluctant to invest. This will slow down the potential for economic growth.
Low savings is a factor contributing to the cycle of poverty.
During periods of inflation households that do have surplus funds are reluctant to save. Inflation erodes the real value of saving and hence there is less incentive to forego current consumption. Decreasing levels of savings and hence of investment will lead to a decline in economic growth and development. Inflation will lead to increases in nominal interest rates. The real value of interest payments will be eroded with inflation and thus banks and financial institutions will have to raise their nominal interest rates in order to try to persuade people to keep their money deposited with banks.