High and variable inflation degrades the quality of the signals coming from the price system, as producers and consumers find it difficult to distinguish price changes arising from changes in product supplies and demands from changes arising from general inflation.
Because prices constitute a market economy's fundamental means of conveying information, the increased noise associated with high inflation erodes the effectiveness of the market system. High inflation also complicates long-term economic planning, creating incentives for households and firms to shorten their horizons and to spend resources in managing inflation risk rather than focusing on the most productive activities.