Is inflation really bad for most people?

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13. in the long-run, it's mostly a transfer of wealth from savers to borrowers

i can't readily quantify how many people benefit vs. how many people lose. i suspect there are more losers than winners in terms of the wealth transfer for the main reason that the winning mostly comes in the form of a fixed-rate mortgage, which for most people is by far their biggest investment of their life, and the losing mostly comes in the form of retirees whose fixed income and retirement savings are largely if not entirely invested in debt. i'm not sure, doubt the typical retiree has savings on a par with this typical mortgage, so i think there are more of them. but i'm not certain, i could be wrong.


that said, virtually everyone, including the long-term winners, experiences the short-term cash flow problem that expenses nearly always rise faster than income for almost everyone. the homeowner's gain is in a long-term, illiquid asset, but the rising expenses are here today. a home equity loan could solve this problem, but then of course you're borrowing some money at the current, higher rates.


in the corporate world, it creates winners and losers similarly. companies sitting on vast amounts of cash are not happy right now. but struggling companies that have been borrowing may have an easier time of it -- at least until they have to roll over their debt. such companies race to hike prices and make enough profit so they're in a position to handle it when their debt comes due and they have to refinance at a higher rate, but until then, they can make extra profit which may see them through. if they make enough extra profit, they can reduce their debt. it's a race, but if they succeed, they inflation can help them out of their debt. of course, the company raising prices contributes to inflation....


note that i'm not saying inflation is purely bad, i agree there are winners, in fact a lot of them, in the long-run at least, as long as inflation doesn't get out of hand. it's just that there are also many losers and inconveniences for everyone.

it's not like unemployment, which is more of an unmitigated problem. personally, i think the fed should generally weigh fighting unemployment more heavily than fighting inflation. but at the moment, inflation is high and unemployment is low, so having interest rates near zero does seem hard to defend....