Question

Is inflation likely to be a problem for at least some low- and middle-income economies in the near future?

Short answer

Because of insufficient administration, lack of inflation indexing, and budget imbalances

Step-by-step solution

Step 1. Meaning of inflation.

A general progressive increase in the prices of goods and services in an economy is known as inflation. It causes the purchasing power of money to decline.

Step 2. Explanation 

Low and middle-income countries are more likely to be be vulnerbale towards inflation. Their central banks are not equipped enough to deal with medium and long-term inflationary pressures.

In high-income countries, contracts, wages, salaries, etc are all indexed to inflation. So, a rise in inflation is accompanied by an increase in wages in salaries. This reduces the harmful impact of inflation. Low and middle-income countries generally do not have this arrangement causing a decrease in purchasing power and other negative impacts.

Low-and middle-income countries face higher inflation rates because of budget imbalances. These imbalances in the budget may result from inadequate management of funds received from various sources.