Question

Name three groups that lose out during prolonged high inflation. Why? Does it matter that the inflation is anticipated?

Answer 1

High level of inflation is not good for the economy especially for different groups including those that receive a fixed amount of money every month such as the retirees Who receive social security benefits and pension. Because their income is fixed inflation reduces their purchasing power and hurt them the most. It also hurts the debtors because they receive a lower amount in real terms after adjusting for inflation. Inflation is also a problem for a restaurants and businesses that have to change their prices frequently because of changing inflation. It is therefore matter a lot if inflation can be anticipated in advance. Such anticipation will help these groups to acknowledge the level of inflation so that so that they can adjust accordingly. Debtors will then charge a higher nominal interest rates, pensioners and social security benefits would be adjusted for inflation which is known as COLA.