Is Inflation Good or Bad for You?

Author :

Tags: inflation

The conventional wisdom says that inflation is very bad. It makes everything we buy more expensive and decreases the value of our currency. But there are times when inflation is good for you.

  Comments: 16

There's been a bit of talk about inflation lately and how it might be rearing its ugly head.  The conventional wisdom says that inflation is very bad.  It makes everything we buy more expensive and decreases the value of our currency.  But there are times when inflation is good for you.

For example, if you purchase a home with a fixed rate mortgage, inflation will decrease the size of your payments in relative terms.  Say you are paying $1,000 per month towards your mortgage.  Now let's say that inflation increases at 5% per year.  That means your mortgage payment shinks by 5% per year as your salary adjusts to inflation.  That's why when you ask someone how much their payments were 40 years ago it seems like peanuts.  Without inflation, that $1,000 per month would seem like $1,000 per month.

A little inflation might actually help sub-prime borrowers by making the payments a bit more manageable.

Generally, if you have a lot of debt, inflation works for you by decreasing the relative size of that debt.  If you have a lot of assets, inflation works in the opposite by decreasing the value of those assets.  $1,000,000 50 years ago is not the same as $1,000,000 today because of inflation.

 

 

Comments


Umbertoli, June 18, 2011


The US is awash in debt. The only thing that will make a dent in it is inflation. But it needs to be wage inflation. If prices go up and wages don't then that just makes it worse. But you can't get wage inflation unless the economy begins to take off. Right now, the economy is dead in the water because of debt. Massive catch-22.

Helpful? Yes:0 / No:1
Is this review helpful? Yes No

Tvallent, June 06, 2011


If wages keep up with inflation then it is true, debts will shrink. This generally happened in the past. If wages do not keep up, then you become poorer. Some inflation is probably good. Inflation above 4-5% is most likely bad.

Helpful? Yes:0 / No:1
Is this review helpful? Yes No

muhammad yousaf, January 01, 2011


brother inflation means the souring prices of the daily use commodities....
it depends upon the policies of goverment and that policies are termed as taxes.

Helpful? Yes:0 / No:1
Is this review helpful? Yes No

shanaya, October 08, 2010


can any of u give me a clear cut answer.....is inflation good or bad???

Helpful? Yes:0 / No:1
Is this review helpful? Yes No

Hari Krishnan, June 23, 2010


first clear about the concept .

Helpful? Yes:0 / No:1
Is this review helpful? Yes No

Anonymous, January 13, 2010


Agency First,alone know information energy eye crowd drawing gun including link bus entirely standard favour importance legislation survey institute shut walk smile open friend head carefully expenditure vehicle mother detailed satisfy skin bright country whole environment body become communication rain discussion itself back coffee concerned man as congress would retain go threat catch correct industrial tape relevant directly reply industry sister strange either annual hold description some educational bottle doctor fruit desk interesting through their basic enough motor wash spring gold clean continue charge throw succeed map

Helpful? Yes:0 / No:1
Is this review helpful? Yes No

Rajiv Gothra, November 12, 2009


Inflation, especially when coupled with artificially low interest rates like we have now, takes its heaviest toll or retirees and others who cannot access the labor force. Think Russia or Argentina. Sad.

Helpful? Yes:0 / No:1
Is this review helpful? Yes No

Jon, November 08, 2009


I agree with the comments that suggest wages need to generally keep up with inflation for this to work out. and inflation cannot insure that by itself. All things being equal, increasing the amount of money in circulation would increase the price of everything, including your wages, by the same amount. Supply and demand forces elsewhere can change and make it sometimes not so.

I disagree with the author's take on assets. Assets like stocks and real estate should increase in price also, all other things being equal, right along with wages. However, if your "assets" are in cash, such as money in the bank, CDs, and bonds. You are basically getting screwed. Inflation is very good for debtors and very bad for creditors. So I feel inflation is good right now, it helps people afford their homes and benefits the credit quality of what lenders have lent out, at the expense of the lender's future profits.

Helpful? Yes:0 / No:1
Is this review helpful? Yes No

AndrewLinus, September 25, 2009


Interesting, but I'm not so sure that any of us are getting regular increases in their salary...

Helpful? Yes:0 / No:1
Is this review helpful? Yes No

Anonymous, March 11, 2009


Wow, I am shocked at how wrong everyone is. Inflation is good for people and bad for banks. Inflation forces higher interest rates, which is good for savings. You are only right in that inflation also reduces long term debt relative to your pay. That is why the central banks always fight inflation, because it erodes bank wealth while lifting debtors out of poverty. Deflation work the other way. Good for banks bad for people. Look at the now, we are deflating and the banks could care less because you now have to pay them back with fewer of your dollars. When you have more, the banks loose, when you have less the banks win. Thus the steady state we have seen for awhile.

Helpful? Yes:0 / No:1
Is this review helpful? Yes No

Related Articles

Add your Comments

 

Find the best Savings or CD Rate

Advertiser Disclaimer. Some of the savings offers appearing on this site are from advertisers from which this website receives compensation for being listed here. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear).

Financial products of all nature bear inherent risks and this website is not a financial advisory service. BestCashCow.com provides information related to rates on US-based savings accounts, CD (certificate of deposit) rates, money market accounts, money market funds, government bonds, other bonds and income producing securities, commodities, equity securities, mortgage rates, home equity rates and auto loans rates, free of charge to internet users for their independent use. The accuracy of information on the website is not guaranteed, and no financial product of any sort is endorsed. On certain web pages, BestCashCow.com may contain discussion and analysis of the risks and rewards associated with certain financial instruments, including equity instruments, or may link to other pages with such discussions. The information should not be construed to provide investment advice. In fact, users are specifically warned against following any advice related to specific instruments, including advice that may be on other web pages linked from BestCashCow.com. Please seek personalized advice on the risks and applicability to your own circumstances of any financial product from a qualified professional. © BestCashCow.com, LLC, 2014.