1. Introduction

Inflation refers to an economic phenomenon in which the money supply exceeds the actual amount of money needed for economic operation in the circulation of paper currency or modern monetary system, resulting in a relative decrease in the purchasing power of money and causing a sustained and widespread rise in price levels for some time. This phenomenon reflects the imbalance between the value of money and the value of goods and services, that is, the surplus of money supply relative to the total supply of goods and services, rather than directly equivalent to the supply of real purchasing power greater than output. The imbalance between the supply and demand of output is also a factor leading to inflation, but the core of inflation lies in the mismatch between money supply and money demand. There is a fundamental difference between inflation and general price increases. General price increases are only due to supply imbalances, while inflation can directly cause currency depreciation. The impact of inflation on the macroeconomy is multifaceted. It will not only bring various problems to the daily lives of the people but also have a huge impact on the economy of the entire country. Under the influence of inflation, residents' income will decrease, leading to a direct decline in their living standards. Economic growth and money supply will stimulate inflation to a certain extent. Therefore, in the past, the government was unable to simultaneously address the issues of avoiding economic slowdown and inflation. In this situation, maintaining economic growth is more important than preventing inflation, and the country will choose to maintain economic growth. At present, the wealth level of citizens has significantly increased compared to before, and preventing the impact of inflation is equally important for the entire macroeconomy. Because it has caused serious social welfare losses. According to statistics, the average ratio of inflation welfare costs to growth slowdown welfare costs is 32.9% In the VAR model, inflation produces threshold effects under different variable conditions, with the most obvious examples being on monetary growth rate, real estate prices, wage gaps, stock prices, exchange rates, and international oil prices. The product gap has the greatest impact on the economic cycle and the longest impact on the monetary growth rate. One of the most direct impacts of inflation is interest rates, mainly reflected in nominal and real interest rates. To control price increases, banks will raise nominal interest rates to absorb excess market liquidity, while real interest rates will decrease because the purchasing power of money decreases under the influence of inflation, and real interest rates may even become negative. Inflation will also have an impact on other financial products. In the stock market, under high inflation, income and profits rise, and the overall price level rises, so stock prices are more likely to rise. Investors generally choose to seek other more stable and safe investment channels to preserve and increase their value, which leads to the outflow of funds from the stock market and drives up stock prices. In the same situation of inflation, the real estate industry is opposite to the stock market. Investors are more willing to invest their funds in physical assets, such as real estate. Therefore, investors will be more active in purchasing real estate, and the price of real estate will continue to rise. This is achieved through asset appreciation to offset the losses and negative impacts caused by currency depreciation.

2. The Direct Effect of Inflation on Economic Growth

2.1. The Behavior of Producers and Consumers

The impact of inflation on consumers and producers is multifaceted. The impact of inflation on consumers is mostly negative, especially for the poor. In the context of rising prices, consumers' living costs increase and their living standards decline, requiring them to spend more money on the same goods and services, resulting in a significant decrease in purchasing power. The impact of rising prices caused by inflation even puts great pressure on people's daily lives. Consumers may also face the dual pressure of wealth shrinkage and savings depreciation. Currency depreciation leads to a continuous decline in the value of cash, and savings interest cannot keep up with the speed of inflation, facing the risk of depreciation. From any perspective, inflation has had a significant negative impact on consumers. However, inflation can have both positive and negative impacts on producers. The positive impact is that producers can increase profits by raising costs, and at the same time, if the price growth rate is much higher than the wage growth rate, producers can increase their profits by increasing production, driving enterprises to expand production and employment. The negative impact is that inflation can lead to increased production costs, distorted production decisions, intensified market competition, and low resource allocation efficiency. However, the impact of inflation on the entire macroeconomy is complex, with both consumers and producers being affected to varying degrees, whether positively or negatively. It can disrupt market balance, lead to price fluctuations, have multiple effects on consumers and producers, and ultimately cause chaos in the entire economic market.

2.2. Price Signal Distortion and Resource Allocation

Inflation will also have varying degrees of impact on resource allocation and prices. The distortion of price information refers to factors that prevent prices from reflecting the true situation of the market, reducing the effectiveness of market signals and affecting the normal operation of the economy, resulting in unreasonable and inefficient resource allocation. Inflation largely leads to distorted price signals and unreasonable resource allocation, causing negative impacts on both producers and consumers, especially the poor. In resource allocation, limited resources must be reasonably distributed to various fields of society to achieve the maximum utilization of limited resources. The rationality of resource allocation has a significant impact on a country's economy. The higher the market efficiency, the higher the effective demand. However, the emergence of inflation disrupts the balance and interferes with consumers' and producers' understanding and control of commodity information. Resources are wrongly allocated to some inefficient industries, while truly advantageous enterprises cannot be allocated to these reasonable resources. As a result, the efficiency of the entire market will be greatly reduced. At the same time, consumers and producers may consume and invest in advance due to concerns about rising prices, which can lead to economic imbalances, unreasonable resource allocation, and low efficiency, thereby having a huge negative impact on the entire society's economy and causing economic imbalances. Therefore, inflation has no advantages or disadvantages for price signals and resource allocation.

3. The Indirect Effect of Inflation on Economic Growth

3.1. Investment and Saving

High inflation usually suppresses savings because low interest rates make savings less attractive. This may lead to a decrease in the savings rate, thereby affecting capital accumulation and constraining economic growth [1]. For example, in the 1970s in the United States, high inflation rates led to negative real interest rates, decreased residents' willingness to save, and tight capital market supply, which affected the stability of economic growth. In a high-inflation environment, residents are more inclined to consume or invest in value-preserving assets such as real estate and gold, rather than depositing funds in banks, which further exacerbates capital outflows.

Compared to savings, investment behavior also faces challenges in a high-inflation environment. High inflation is usually accompanied by a high-interest rate environment, which increases borrowing costs for businesses and reduces investment willingness. In addition, the uncertainty of inflation increases investment risks, making investors more inclined to choose hedging assets rather than productive investments [2]. This trend weakens capital formation, thereby suppressing long-term economic growth. High inflation may also lead to companies delaying or canceling investment projects, especially in industries that require a long-term stable low interest-rate environment to make profits, such as infrastructure construction and high-tech research and development [3]. This reduction in investment not only affects current economic growth but also limits future production capacity expansion and weakens the potential for long-term sustainable economic growth.

3.2. Financial Market Stability

High inflation poses a complex and far-reaching threat to the stability of financial markets. Firstly, inflation increases market uncertainty, making it difficult for investors to predict future economic conditions, leading to a decline in market confidence. Funds usually flow from risky assets such as stocks to safe-haven assets such as gold, which further exacerbates the volatility and uncertainty of the stock market [4]. For example, Türkiye experienced high inflation in 2018, which led to the devaluation of the lira, increased volatility in the capital market, and frustrated investor confidence, which ultimately hurt economic growth.

Secondly, inflation may trigger asset price foam and collapse risks. In a high-inflation environment, the prices of assets such as real estate and stock markets may be pushed up to unreasonable levels. Once inflation is controlled or market expectations change, asset prices may quickly fall back, leading to market crashes and economic crises [5]. This phenomenon was particularly significant during the 2008 global financial crisis when the foam burst in the real estate market triggered large-scale financial instability. Finally, the impact of inflation on the credit market cannot be ignored. The instability of interest rates may lead to increased borrowing costs for businesses and households, increase default risk, and trigger debt crises [6]. ＇

3.3. International Trade and Competitiveness

High inflation not only affects the domestic economy, but also has a profound impact on international trade and competitiveness. Firstly, inflation causes a country's currency to depreciate, which directly leads to an increase in the prices of imported goods, thereby exacerbating the trade deficit [7]. The depreciation of the local currency may promote exports in the short term, as exported goods become relatively cheap in the international market. However, as domestic production costs rise, the price competitiveness of exported goods will gradually weaken [8]. In the long run, this cost increase will lead to a decline in the overall competitiveness of the country, affect export volume, and may result in a reduction in trade surplus, thereby harming economic growth.

In addition, exchange rate fluctuations caused by inflation may lead to instability in international capital flows, making investors more inclined to transfer funds to economies with lower inflation and stable exchange rates [9]. This capital outflow is particularly obvious in emerging market economies, such as Türkiye and Argentina. The exchange rate crisis caused by inflation has severely hit the economic stability of these countries. The fluctuation of exchange rates also affects the structure and direction of international trade. In a high-inflation environment, export enterprises face greater exchange rate risks when signing long-term trade contracts, which may force them to include higher risk premiums in the contracts, thereby weakening their international competitiveness [10].

4. Policy Response and Strategy Suggestions

To cope with the negative impact of inflation on economic growth, governments around the world need to take a series of comprehensive measures. Firstly, monetary policy should remain tight by controlling the money supply and interest rates to curb inflation. Central banks of various countries can tighten monetary policy by raising interest rates, reducing excess market liquidity, and lowering inflation expectations. This measure not only helps stabilize prices but also enhances investor confidence [7]. For example, in the early 1980s, the Federal Reserve System of the United States effectively curbed the prolonged high inflation situation through a series of interest rate hikes. This policy gradually restored economic stability and controlled inflation rates [8].

Secondly, fiscal policy should complement monetary policy. The government can avoid exacerbating inflationary pressures by reducing unnecessary public spending and controlling fiscal deficits. In addition, the government should implement structural reforms to improve the production efficiency and supply capacity of the economy, thereby reducing inflationary pressures in the long run [6]. For example, Japan implemented a series of structural reform measures in the late 1990s to combat deflation by improving productivity and market competitiveness, ultimately achieving economic recovery [9]. These measures include reducing direct intervention in the economy, promoting innovation and technological progress, and opening up markets to improve overall economic efficiency.

At the international level, countries should strengthen cooperation and jointly address the challenges of global inflation. For example, the International Monetary Fund (IMF) can provide technical support and financial assistance to countries affected by high inflation shocks, helping them stabilize their financial markets and restore economic growth [10]. Globally coordinated action also includes regulating international capital flows and avoiding financial turbulence caused by sudden capital outflows, which is particularly important for emerging market economies [11].

Finally, enhancing public awareness and management capabilities towards inflation is also one of the measures to address it. The government and financial institutions should increase the transparency of inflation expectation management so that the public and businesses can better understand the current economic situation and its possible development direction. By issuing clear inflation targets and policy paths, central banks can help stabilize market expectations and reduce the negative impact of inflation fluctuations on economic activity.

5. Conclusions

By analyzing the direct and indirect impacts of inflation on economic growth, this article reveals the importance of inflation in macroeconomics. Inflation not only affects the behavior of consumers and producers, but also has a profound negative impact on economic growth through distorting price signals, improper resource allocation, affecting investment and savings behavior, threatening financial market stability, and weakening international trade competitiveness. Especially in the context of global economic instability, inflation management has become one of the major challenges faced by governments and policymakers around the world. To effectively control inflation, governments of various countries should take comprehensive measures, including implementing tight monetary policies, coordinating prudent fiscal policies, promoting structural economic reforms, and strengthening international cooperation. These measures not only help control inflation but also lay the foundation for long-term stability and sustainable economic growth.

Future research can further explore the impact patterns of inflation on different economies, as well as the actual effects of various response measures. In addition, with the changing global economic situation, new challenges may arise, such as the impact of climate change on price stability and the rise of digital currencies, which require in-depth research to address to ensure sustained and healthy economic development.

Authors Contribution

All the authors contributed equally and their names were listed in alphabetical order.