Inflation is arguably one of the most debated phenomena in economics. In fact, economics experts use this term with in different contexts and with different meanings. For the majority, moderate inflation levels are necessary for the healthy economics. The Federal Reserve believes that slowly increasing prices prevents customers from waiting for price to go down and that’s what’s keeping businesses profitable.
For some experts, inflation has one primary purpose: to prevent deflation. On the other hand, there are economists and politicians who believe that inflation is not as important or that it evens present a net drag on the global economy. Increases in price levels make savings more difficult and time-consuming, which makes individuals more interested in opting for riskier strategies when it comes to investments in order to maintain or increase their wealth. There are some experts who claim that the inflation has advantages for certain individuals and businesses, while it’s disadvantageous for most others.
So what are the possible advantages of inflation? If the economy isn’t running at capacity, which means that there are unused resources or labor, in theory, inflation can help increase production. More money means more spending, which eventually translates to more aggregated demand. In turn, more demand leads to more production. In case consumer prices fall consistently because of country’s over-productivity, consumers start holding off their shopping in order to wait for better deals. The reduced demand triggers less production, which means a faltering economy.
Additionally, if you’re repaying your loans, inflation will make it easier on you. This encourages lending and borrowing which, of course, leads to increased spending on every level. In fact, the largest debtor in the world is probably the U.S. government, so inflation softens the blow of their massive debt.