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In a moderate inflationary economy, price levels rise faster than income growth. For instance, consider a scenario where individuals see their incomes increase by 4% while inflation rises by 6%. This results in a 2% reduction in real purchasing power, creating challenges for low-income individuals who struggle to afford basic necessities. However, even under these conditions, the situation is deemed a "nuisance" rather than a catastrophe.
While inflation can feel burdensome, it is often a sign of economic activity and can encourage spending and investment. Essentially, a certain level of inflation suggests that the economy is functioning and growing, albeit at a slower pace than desired.