Inflation is a sustained rise in the price level over a period of time. There are two types of inflation: demand pull and cost push. Demand pull inflation occurs when there aggregate demand rises faster than aggregate supply. When firms work close to full capacity and can’t react immediately to increases in demand, this will push price levels up. Cost push inflation arises from the supply side: when there is an increase in costs of production, wage rates, for example, or raw materials, this will also affect prices and it is difficult to reduce this inflation. 
Inflation will affect others sectors of economy such as Balance of payments. With high price levels, exports will be less competitive and demand for them might decrease, this may lead to a budget deficit. 
Also inflation will affect value of money: purchasing power of money will fall and this will reduce people’s real income, which might lead to a decrease in aggregate demand. 
Inflation creates uncertainty about the future and affects business planning and investments. 
Those workers who have fixed income will lose as their average propensity to consume will decrease with higher prices.

Cost push inflation is more harmful as it usually more difficult to reduce it. Government might reduce corporation tax of firms or give them subsidies, however this would affect budget and might lead to a budget deficit. To reduce demand pull inflation, government could raise income taxes in order to decrease aggregate demand or increase interest rates, which means that people will save more instead of spending.