A closer look at inflation

First, inflation lessens the real value of debt. In 2020, American households had around $14.5 trillion in debt from their mortgages, credit cards, student loans, and other sources. Inflation of 6.2 percent means that the real value of that $14.5 trillion is now just $13.65 trillion in last year’s dollars.

In other words, the inflation over the past year has effectively transferred $850 billion in wealth from creditors to debtors. That’s a lot of money.

Most people are a mixture of creditors (e.g., you have a bank account) and debtors (you have a mortgage and student loans). But overall, this $850 billion has generated a big check written by the tippy-top of the income scale to everyone else. And as you’d expect, the people at the tippy-top don’t like this.

Second, inflation generally accompanies economic booms, when the unemployment rate is low and workers have the market power to demand higher pay. That’s what’s happening now: As prices increased 6.2 percent over the past year, wages for regular people went up 5.8 percent. In other words, inflation barely touched their purchasing power. And with almost 300 labor strikes in the U.S. so far this year, workers are leveraging their power to demand better compensation at historic rates. So while inflation can be a significant problem for workers if they don’t get it back in higher paychecks, that seems unlikely today.

Then add to higher paychecks the fact that the median American recently had about $65,000 in debt. Inflation has reduced the real value of this debt by almost $4,000 over the past year. With that added to pay increases, most people have come out significantly ahead.

Put these two things together — lowered values for their assets and higher wages for workers — and you can understand why the rich people who run the U.S. absolutely detest inflation.

However, there is one rock that can kill both these birds at the same time. The Federal Reserve can raise interest rates. This would slow the economy and increase the unemployment rate, lessening worker bargaining power. Less bargaining power would mean lower or nonexistent raises, which would eventually translate into lower inflation.

That’s what all today’s inflation panic is ultimately aimed at: creating an economy with higher unemployment, lower growth, and more frightened workers. Whether America’s creditors can make this happen remains to be seen, but we shouldn’t have any illusions about what they’re trying to do. And we definitely shouldn’t help them do it.

  The Intercept

The following is a British example, but it applies to the US as well.

Anyone with a mortgage or a loan benefits from inflation, as it has the effect of eroding debt. In the 1960s my father bought a house for £11,000. But with inflation peaking at around 13% in the late 70s, his wages were rising fast too - meaning the mortgage repayments were taking an ever smaller share of his income. By contrast, deflation - or falling prices - increases the real value of debts.

[...]

The government has a huge debt, which is getting bigger thanks to a deficit of £90bn. It would dearly love to see that eroded by inflation, which in turn would see its own income rise. As long as there's a good dose of inflation in the system, tax revenue should go up, even if the economy is stagnant.

When inflation is too high of course, it is not good for the economy or individuals. Inflation will always reduce the value of money, unless interest rates are higher than inflation. And the higher inflation gets, the less chance there is that savers will see any real return on their money. Although in theory that should be good for the economy, by encouraging people to spend rather than save.

[...]

Most central banks favour an inflation target that is in the region of 2% to 2.5%. The Bank of England's target of 2% under the CPI measure is fairly typical. Some economists argue there should be a higher target in times of recession, such as 3%. This can promote higher growth, by keeping interest rates lower for longer.

But whatever the precise level, most do agree that a little dose of inflation is absolutely essential.

"The most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague," said the Austrian philosopher and economist Ludwig von Mises.

"Inflation is a policy."

  BBC

...but hey, do what you want...you will anyway.