The uncertainties that inflation creates make the problem worse. The mere possibility of inflation creates uncertainty about the true meaning of changes in the prices of individual goods and services. This uncertainty could lead to the misallocation of resources, which would reduce economic growth. This problem is nowhere more serious than in the capital market. Inflation uncertainty raises the risk premium that investors require and increases the cost of capital, thus lowering fixed capital formation.
Lower investment means lower future growth and less future income.
If producers and consumers feel confident that the average price level will remain stable, they can be more certain that price changes indicate true shifts in demand and supply. Obviously a monetary policy that maintains price stability can improve the efficient functioning of markets. This promotes the full and productive employment of resources. As Alan Greenspan once stated, a monetary policy that prevents inflation from being a factor in the decision making of businesses and consumers, is a monetary policy that best promotes economic growth. Empirical evidence shows that high inflation has a negative correlation with economic growth.