Inflation causes you to lose the value of money over time. Over time, the prices of goods and services tend to rise. This has a huge impact on the world economy.
And because inflation affects the purchasing power of money, it also affects borrowers and borrowers.
Both political parties benefit in some way from inflation. Borrowers with fixed-rate loans can benefit from paying off their debts with less valuable money, and borrowers can benefit from rising rates on variable-rate loans. Borrowers can also benefit from increased demand for credit because people need more cash to buy necessities.
Inflation is a winner.
Borrowers who got existing fixed-rate loans.
Many borrowers, both now and in the future, will not benefit from inflation. But people who are already borrowing money and paying off low-interest fixed-rate loans are happy, says Ahmed Rahman, associate professor of economics at Lehi University.
“People with fixed-rate mortgages or student loans may not be celebrating inflation, but they are somewhat protected from the more harmful effects,” Rahman says.
For example, if you buy a $500,000 home in June 2021 with a down payment of 10 percent and pay a 30-year fixed-rate mortgage at 2.75 percent (the usual interest rate a year ago), you pay $2,232 a month. If you get the same mortgage with an interest rate of 5.30%, you will be paying $2,893 a month, which is $650 more.
Stocks and commodities are investors.
Stock prices can go up when price stability is low.
When inflation occurs, companies are forced to pay higher wages. Because this can hit corporate profits, companies accept high wages and raise prices to increase corporate profits.
When corporate profits go up, stock prices go up as well. This helps investors get a good return on their investment and beat inflation.
If you own a car and fill up your tank regularly, this won’t surprise you.
“The perfect storm has caused energy prices to spike over the last year,” said Eric Deaton, president and managing director of Wealth Alliance, a registered investment advisory firm in Melville, N.Y. “It says.
Deaton says a major factor in the perfect storm is climate change and the global response to it, but supply chain problems, labor shortages, the war in Ukraine, Corona and more are all contributing to rising energy prices.
Electric car manufacturer.
After years of Hohm sales, electric car or electric vehicle companies have a lot to celebrate. In Q2 2022, new electric car sales were up 13% over Q1. Electric car sales set a new record, led by motorists tired of high oil prices.
However, more cars would have been sold if electric car manufacturers had not struggled with a shortage of semiconductors, a critical component of electric cars.
However, if inflation continues to drive up gas prices, we expect demand for electric cars to persist.
There are landowners and real estate investors.
The assets of real estate investors and landowners can grow significantly during a time of high inflation.
Land is an asset whose value is constantly rising because of limited supply. Also, when prices rise, most people rush to buy land. This is because land consistently retains its value.
This increase in demand creates a steady source of income for real estate investors and landowners, helping them overcome the side effects of inflation.
Now that you know who benefits from inflation, let’s look at who can benefit from inflationary pressures.
Generally speaking, inflation is good for the food industry. Of course, not everyone does. If you talk to any restaurant owner, you’ll tell them how they’ve been depressed by the epidemic and inflation, given that customers were originally worried about their health when they ate out, and now they’re worried about their pockets. But what about food producers like poultry processors? They’re doing fine.
“Food prices have risen more than 10 percent in the last year because of many of the same factors that have affected energy prices,” Deaton said. “It says. “Russia and Ukraine account for about 30 percent of global wheat production, and the war has greatly reduced production and, consequently, raised prices dramatically. As a result, many food producers have benefited from higher prices.”
Who loses from inflation?
Everyone with a fixed salary or fixed income.
If your salary or retirement income doesn’t change when inflation raises prices, you may find that your budget is tight.
“Inflation is bad because it affects the purchasing power of our income,” said Ann York, professor of economics at Meredith University in Raleigh, North Carolina. “Prices tend to rise faster than wages.”
York explains that if inflation increased prices by 5 percent, but wages rose only 3 percent, they wouldn’t be able to live like they used to.
Even worse, the federal minimum wage is at its lowest level in almost 70 years. The wages of the lowest-paid workers have not kept up with inflation in the decades leading up to this inflation.
Rahman says you can also be frustrated if you get Social Security.
“Older people suffer more than others because they tend to rely on a fixed income and often have high medical costs, which tend to rise rapidly during inflation,” he says.
If you’re on Social Security, you usually get a living wage increase in January each year, which keeps seniors from falling too far behind price increases. However, if prices continue to rise after these adjustments are made, it won’t help you much.
The Federation of Senior Citizens predicts that social taxes could show an alarming 10.5% increase in 2023.
While inflation may raise wages and reduce the burden on working households, those living on retirement income are less fortunate.
Retirement funds are usually fixed and do not account for rising inflation trends. This means that the real retirement income of retirees holding fixed-income securities, such as cash or bonds, has declined.
Social Security recipients do not face this problem, however, because the U.S. Social Security Agency adjusts Social Security payments in line with inflation (based on fluctuations in the Consumer Price Index).
Poor and low-income Americans.
If you were living paycheck to paycheck before inflation went up, it would be much worse because your paycheck would probably be less than it used to be.
It’s true that during the epidemic and since then, many people have seen their wages rise. However, according to a report from the Pew Research Center, average wages for workers in low-income occupations, especially in accommodation and food service, are still lagging.
Generally, monthly mortgages will persist until property taxes go up or variable-rate mortgages (ARMs) are in place.
But renters aren’t so lucky. Once the lease expires, the landlord can usually increase the rent.
And rents are on the rise. According to the CPI report, the rent index rose 0.8% in June, which may not seem impressive, but it is the largest monthly increase since April 1986.
From June 2021 to June 2022, rents rose 5.8% nationwide. Last June, rents in Manhattan hit an all-time high. The average monthly price of new leases was $4,050.
But the essence of rising prices and rents is that when the monthly payment goes up, especially if the monthly income is set, the extra income paid to the landlord comes from something else in the budget. And when everything else in the budget gets more and more expensive, people start thinking about living with their parents or getting roommates.
Saving is often considered a good habit to create financial security, but people with large savings deposits can face significant losses during inflation.
When inflation rises sharply, interest rates will struggle to keep up, and savings accounts will often show negative real returns.
A negative real return occurs when the inflation rate exceeds the nominal interest rate of the savings account balance. Even with interest income, real purchasing power decreases because of the rising cost of living.
Instead, savings should be invested in short-term securities and reinvested when interest rates are higher.
Fixed-wage workers are one of the largest groups in the labor market affected by high inflation.
Fixed-rate workers do not earn variable income like salespeople, and most wages are not fixed in the inflation index. The lack of variables may be attractive to those who want a steady paycheck, but times of high inflation reduce their real wages.
This means that workers with fixed wages, especially those living on the minimum wage, experience reduced purchasing power during times of higher inflation