We are frequently told, mostly by people with vested interests who probably know better, that the poor suffer the most from inflation. The truth, as usual, is more complicated, as follows:
- People with existing debts tied to fixed interest rates are unquestionably winners, as they get to repay the debt in depreciated currency. Creditors lose, for the same reason.
- People whose income comes from the government, and who benefit from statutory cost of living increases (i.e., Social Security) break even.
- Businesses have the legal ability to raise prices, and thus protect their profits, very quickly. Whether they can do so in practice depends on the elasticity of the demand for their product or service and their market power.
- Workers subject to collective bargaining agreements that do not contemplate inflation, and which expire in the distant future, are losers.
- Minimum wage workers may win or lose, depending on the state of the labor market. In today’s market, they have the ability to move on for higher pay. That will probably change in the fairly near future.
- People with large sums of money in long term CDs lose, unless the CDs provide for inflation protection, which is unusual.
- Investors are dependent on the businesses in which they invest–see #3.