Every day there is a new article about how inflation affects the economy. Inflation can be scary for consumers, producers, and retailers because it threatens the livelihood of the economy. But does anyone benefit from inflation? This blog post will examine who benefits from inflation and why.
Who benefits from Inflation, Borrowers, or Lenders?
Inflation means that the buying or purchasing power of local currency deteriorates at an unexpected rate, thus making any amount of money worthless on the market. In a situation like this, lenders tend to lose a lot since they are paid back money which has less purchasing power than when they gave it to borrowers [Source]. Most lenders give out loans that might have a time frame of 1 or 2 years, and in an inflation environment, that money will lose its value when that time frame expires. Borrowers tend to benefit from inflation because they can pay back any amount borrowed when their purchasing power has declined. Also, borrowers are known for studying the state of the economy so they can project the value of money they have to pay back in a given time frame. Because of this, they stagger payments to benefit from inflation and will only pay valueless amounts due to the effects of inflation.
Who gets hurt by Inflation?
Inflation is bad for the whole economy, and its negative effects are felt by everyone. Producers or firms are part of the backbone of any functioning economy since they are the suppliers of goods and services. They feel the sting of inflation because prices of raw materials will be hiked, and they will not be able to buy enough raw materials to produce the required goods. Also, they will be forced to retrench some of the labor to cut down losses on wages and salaries. Retailers also suffer because they have to buy goods or services from producers at high prices and obviously fail to restock their shelves, thus depriving their customers of goods or services. Customers or consumers get hurt by inflation mainly because it reduces the purchasing power of their money, and employers avoid increasing wages or salaries. Demand will rise, but the general public fails to buy goods or services. People who save cash always cry in an inflation environment as their stash loses value [Source]. Workers on fixed income become part of the poor community since their incomes are made obsolete. The end result is that businesses are closed, and consumers are eventually plunged into poverty.
Why is Inflation bad?
Inflation is bad because it hinders any economic growth or expansion. Uncontrolled inflation results in hyperinflation, which is worse and forces many business players to quit the game. Devastating effects of inflation include reducing the value of the local currency to the extent of a country adopting a multicurrency system or adopting a foreign currency. The word ‘inflation’ spells ‘poverty’ for the general populace, especially the working class, who usually have a fixed income. The gap between the wealthy and the poor is widened by inflation; thus, the poor community becomes worse and fails to buy basic needs [Source]. Inflation chases away any potential business expansion or investment. It leads to criminal activities as people try to make a living. The economy is responsible for feeding the masses and providing basic goods or services, so inflation is a danger to the cornerstone of humanity’s livelihood, which means it is very bad.
Does the government benefit from Inflation?
The government does benefit from inflation in other aspects. For instance, the government collects tax revenue when wages and prices increase [Source]. Inflation also aids the government in roping foreign currencies to stabilize the economy. In developing countries, government officials turn into business people during inflation as they try to change the situation. When inflation occurs, it becomes an eye opener for the government to reconsider its economic policies and invest more in aiding the livelihood of the public. Governments can test their preparedness to cater to the public during inflation and are given a chance to fulfill all the promises made to the electorate in campaigns. More so, the government wants businesses to profit because many government officials are involved in the economy, so inflation brings high prices, which are very profitable to business owners.
Does Inflation benefit the rich?
The rich are fortunate enough to benefit from inflation. Most wages and salaries are increased, so the rich pocket more money. Also, “the more people who go broke, the more money moves up”; thus, the rich people will enjoy having title deeds to all the wealth in a locality. Inflation only hurts lower incomes and enriches the higher income [Source]. Most of the wealthiest people in this world invest in assets, and they do this during inflation when the value of money decreases. Rich people increase their wealth in real estate because they are not involved in cash savings, so they manipulate the economic environment to acquire more assets. In developing countries, these wealthy individuals buy organizations that fall out and become suppliers of goods or services and profits due to hiked prices. Financially stable people can actually invest during inflation and enjoy the fruits of their investment. They are better positioned to make the right economic decisions that increase their wealth.
What businesses benefit from Inflation?
When inflation happens, most people tend to ignore or abandon a luxurious lifestyle and try to survive on the basic pedestal of living. This means all businesses which offer goods or services that are regarded as luxurious will not benefit from inflation. Businesses that benefit from inflation are those involved in providing basic goods or services such as food, medical care, funeral cover, education, housing, energy, and clothing. Such businesses are hospitals, law firms, schools, financial companies, real estate, universities, and councils [Source]. It does not matter if these businesses are owned by the government or belong to the private sector; they just thrive because people will still pursue basic needs when life becomes hard.
What Industries benefit from Inflation?
Only those offering basic needs will benefit from inflation in industries. These industries include water and energy, clothing, commodity, farming, and real estate [Source].
