Inflation is at a forty-year high, and everyone is paying higher prices as inflation erodes the average person’s purchasing power. But who hurts the most from inflation?.
Here are the groups that hurt more during periods of high inflation:
Low-wage workers are impacted by high inflation since it takes more of their wages to cover gas, food, utilities, and more. They often cannot negotiate wage increases to offset rising inflation.
Workers in a contract with a fixed rate of pay cannot negotiate a higher wage to offset high inflation due to being in a contract. They also feel inflation is eroding their purchasing power.
For retirees, inflation decreases their retirement savings, and they cannot replenish savings since they no longer work.
When prices rise, the value of money decreases, and the value of saving declines. Interest rates do not increase when inflation increases; the opposite happens. When the Fed raises interest rates, interest rates on consumer savings accounts do not increase since banks need to pay more to borrow from the Fed. During periods of inflation, people who have saved throughout their lives may see their savings deplete faster since higher prices take more of their savings.
Those with low income or near poverty have their budgets stretched when inflation is high. Low-income people experience what economists call “inflation inequality” since they can not offset high prices by making more money.
When inflation is high, the Fed steps in to raise interest rates to curb spending and slow inflation. When interest rates increase, consumers spend less, and the demand for goods and products decreases. Unfortunately, debtors with variable interest rate notes, such as variable mortgage rates or credit cards, will pay more as their interest rate increases.
When inflation is high, consumer confidence decreases. Banks and companies also pull back from spending, reducing investing and business expansion. In some instances, there is less job availability and a leveling of wages during periods of inflation.
Inflation is a regular occurrence and is not always bad if it does not remain high for extended periods. Economists view a 2% inflation rate as comfortable and inflation above 5% as bad for the economy, so the Fed has indicated it will raise interest rates throughout the year. When interest rates increase, inflation decreases, helping everyone keep more of each dollar.
SWG2153188-0422d The sources used to prepare this material are believed to be true, accurate and reliable, but are not guaranteed. This information is provided as general information and is not intended to be specific financial or tax guidance. When you access a link you are leaving our website and assume total responsibility for your use of the website you are linking to. We make no representation as to the completeness or accuracy of information provided at this website. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information and programs made available through this website.
In addition, Demo DMS specializes in providing strategies and guidance for those who are seeking a better lifestyle in retirement. If you have retirement savings of five million dollars or $50,000, we can ensure it works as hard. As a result, we offer our experience and knowledge to help you design a custom strategy for financial independence. Contact us today to schedule an introductory meeting!