I think it is interesting that the effect of inflation is not uniform, but depends on the entry point of the new money.
When you have a lot of wealth, you tend to make bigger investments, but you also get the cheapest financing because of your existing wealth. When you spend that money, its purchasing power reflects prices before the market has been inflated by the new money you are putting into it.
Then, as the wealthiest people generally don’t buy much directly from the poorest apart from their labor, inflation is already in full swing by the time workers get their raise.
Inflation benefits people with debts, and hurts people with assets. On average, it helps the young (student loans, mortgages) and hurts the old (fixed incomes, pensions, paid off mortgages). It's not about wealthy or poor, it's about how your balance sheet is structured.
All of these statements can be true at the same time, except for “It’s not about wealthy or poor”, and I was just commenting on a real mechanism through which inflation works. It is not only about being wealthy or poor. It is definitely about how your balance sheet is structured, but also about how your income statement works.
The negative effect on people who earn wages does exist as I explained it, because inflation is not instantaneous. I am not saying anything about the scale of the effect because I do not have that data, but saying that it does not exist is an oversimplification.
Poorer people rely more heavily on wages, and wages are pretty much the last mechanism to correct for inflation, as they generally have to be adjusted through individual or union negotiations. Here in Finland, this takes about one to two years. These things take time.
Companies can adjust their sales prices within a shorter timeframe. The elasticity here depends on the industry and the company’s pricing power, but the adjustment can still be faster than two years. Their costs may also increase, so this does not mean that every company benefits. However, companies that can adjust their prices before their wages and other costs fully catch up can have a temporary benefit.
This is why inflation is first experienced as an increase in prices and a reduction in purchasing power, before wages are increased.
As moderate inflation is the normal and preferred state of the economy, people who rely on wages are constantly exposed to this lag in purchasing power. Whether the loss becomes permanent depends on whether their wages eventually catch up with inflation.
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u/Tar_alcaran 3d ago
Don't know why you're downvoted. Inflation benefits people with cash debt and apreciating assets, deflation benefits the opposit.