dano01This is just an extract from Investopedia.com - It is a...

dano01
This is just an extract from Investopedia.com - It is a good site to explain alot of information in layman's terms, and detailed terms.
I personally feel that 'some' inflation is good, the trick is to balance it with the economy. Unfortunately our economy is only about 5%, tops, of global economies, so no matter how good we do we are at the mercy of the 'junk status' economies, like the US. Also, just my opinion, but any excuse for a sell down, just like any excuse for a bounce. Hope Mr Benanke speaks well, that'll help/hurt your stocks more than the awful truth LOL :))

Costs of Inflation

Almost everyone thinks inflation is evil, but it isn't necessarily so. Inflation affects different people in different ways. It also depends on whether inflation is anticipated or unanticipated. If the inflation rate corresponds to what the majority of people are expecting (anticipated inflation), then we can compensate and the cost isn't high. For example, banks can vary their interest rates and workers can negotiate contracts that include automatic wage hikes as the price level goes up.

Problems arise when there is unanticipated inflation:

Creditors lose and debtors gain if the lender does not anticipate inflation correctly. For those who borrow, this is similar to getting an interest-free loan.
Uncertainty about what will happen next makes corporations and consumers less likely to spend. This hurts economic output in the long run.
People living off a fixed-income, such as retirees, see a decline in their purchasing power and, consequently, their standard of living.
The entire economy must absorb repricing costs ("menu costs") as price lists, labels, menus and more have to be updated.
If the inflation rate is greater than that of other countries, domestic products become less competitive.

People like to complain about prices going up, but they often ignore the fact that wages should be rising as well. The question shouldn't be whether inflation is rising, but whether it's rising at a quicker pace than your wages.

Finally, inflation is a sign that an economy is growing. In some situations, little inflation (or even deflation) can be just as bad as high inflation. The lack of inflation may be an indication that the economy is weakening. As you can see, it's not so easy to label inflation as either good or bad - it depends on the overall economy as well as your personal situation.