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The consensus view is that inflation, especially if it is unanticipated, has real economic costs (Snowdon and Vane, 2005). In terms of anticipated inflation it is believed that there are still welfare costs. These are shoe leather costs and menu costs (Snowdon and Vane, 2002). Shoe leather costs are prevalent as a result of the increase in time deposits, in an inflationary environment, so that the interest earned will partially offset the nominal costs of inflation. Menu costs result from the labour, paper and ink cost of re-pricing goods due to inflation. The costs of inflation have more impact when the inflation is unanticipated, this can lead to reductions in the real wage rate...
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