Impacts of inflation on firms

firms

Increased costs of production experienced by firms eg…

cost of raw materials, staff wages increase

Difficulty making planning and investment decisions

because firms are unsure of what will happen to prices and costs during inflation.

Investment

is adding to the stock of capital goods.  
Investment spending is discouraged when prices are rising as the price of capital goods increases.  There is less incentive to replace old equipment. This may cause a decrease in output and lower economic growth.

Speculative investment

may occur rather than productive investment.  This leads to firms buying or developing assets for sale to gain from increasing prices rather than using them to produce other goods and services.(stop buying assets) 

A little inflation

 may be a good thing for firms. If firms can see their prices rising this acts as an incentive (encouragement) to maintain or increase production.