Interesting article: http://www.ourdime.us/878/concepts/why- ... ation-bad/
I would argue that inflation gets an unfair press. It doesn't significantly reduce an economy's wealth IMHO, but rather redistributes it (the exception being hyper-inflation). In other words, it creates winners and losers within an economy, but mainly redefines rather than reduces the total wealth within the economy.
And inflation can also effectively write off part of your nation's sovereign debt, assuming that the interest you pay on bonds isn't index linked!
Jeff
Why is inflation bad?
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mister man
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dont things cost more though, it seems sort of bad that i will have to pay £1.20 for a loaf of bread that cost me £1.00 a month or two back.
hows that good
hows that good
You might be worse off, but the baker might be better off.
Just to add to my earlier post, I think inflation could result in our economy shrinking if it's imported. For example, if geopolitical issues mean that wholesale petrol prices increase, then that will result in more wealth leaving our economy.
Jeff
Just to add to my earlier post, I think inflation could result in our economy shrinking if it's imported. For example, if geopolitical issues mean that wholesale petrol prices increase, then that will result in more wealth leaving our economy.
Jeff
mister man wrote:dont things cost more though, it seems sort of bad that i will have to pay £1.20 for a loaf of bread that cost me £1.00 a month or two back.
hows that good
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mister man
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how can the baker be better off, if hes charging more because of inflation,it means his cost have gone up,unless hes profiterring on the back of general inflation not applicable to him, which means that the price rise isnt inflation in this case, but greed.
but if its really price rises from him due to inflation hes no better off like the buyer isnt.
but if its really price rises from him due to inflation hes no better off like the buyer isnt.
In brighter economic times, the baker might well think 'People are well off, and my competitors are charging more as a result, so I might as well do likewise'.mister man wrote:how can the baker be better off, if hes charging more because of inflation,it means his cost have gone up,unless hes profiterring on the back of general inflation not applicable to him, which means that the price rise isnt inflation in this case, but greed.
You can't blame someone for wanting to maximise their profits.
If it's due to increased wholesale costs, then that's possibly good news for wheat farmers. Maybe an increased demand for wheat has caused them to raise their prices. Or it could be that the main beneficiaries are financial market traders who have been speculating in wheat. Either way, you have winners and losers - it's not all one-way traffic.
Jeff
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mister man
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your reply leads me to believe that wholesalers arent subject to inflation.
why arent wholesalers subject to inflation ???
they will be charging more because there cost have gone up too.
why arent wholesalers subject to inflation ???
they will be charging more because there cost have gone up too.
Of course they are - And sometimes wholesalers will increase costs to retailers because their own costs have risen, and sometimes they'll do so because they think that they can get away with it!
But in either scenario, the price increase leads to a transfer of wealth, not wealth destruction.
Jeff
But in either scenario, the price increase leads to a transfer of wealth, not wealth destruction.
Jeff
mister man wrote:your reply leads me to believe that wholesalers arent subject to inflation.
why arent wholesalers subject to inflation ???
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mister man
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- Joined: Tue Jul 27, 2010 2:10 pm
but if all parties cost are going up,wholesalers,retailers,public,and nobody is making extra cash just charging more to get the same, thats presuming wages for the public match inflation which they generally dont, how is it good.
public will get inflation wage rises less a percentage.
retailers and wholesalers these days desperate for business generally wont pass on the full increase in costs to them so as to maintain a competitive edge.
i cant see how inflation is good for anyone,but the mint
public will get inflation wage rises less a percentage.
retailers and wholesalers these days desperate for business generally wont pass on the full increase in costs to them so as to maintain a competitive edge.
i cant see how inflation is good for anyone,but the mint
But there are winners and losers...
Let's say you've taken out a massive loan. And let's say that there's 10% inflation over the next 12 months, but interest rates remain on hold. Inflation would mean that, in a year's time, your outstanding debt would be lower in real terms than would otherwise be the case.
But if inflation rises but your employer decides not to give staff a corresponding rise in pay, then inflation might make you worse off.
Jeff
Let's say you've taken out a massive loan. And let's say that there's 10% inflation over the next 12 months, but interest rates remain on hold. Inflation would mean that, in a year's time, your outstanding debt would be lower in real terms than would otherwise be the case.
But if inflation rises but your employer decides not to give staff a corresponding rise in pay, then inflation might make you worse off.
Jeff
mister man wrote:but if all parties cost are going up,wholesalers,retailers,public,and nobody is making extra cash just charging more to get the same, thats presuming wages for the public match inflation which they generally dont, how is it good.
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mulberryhawk
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yet you keep slating mervyn kings monetary policy stance......hmmmmm
A. I drew a distinction between inflation originating in the UK and that originating overseas. If QE here and in the US causes oil prices to rise, then the UK consumer will probably pay to make people mainly outside of the UK wealthier.
B. Inflation isn't the only issue with QE. When we buy back bonds from the banks, we generally do so at a loss. And the idea that the banks will turn around and use the money raised to lend to small businesses is laughable!
C. I acknowledged that hyper-inflation is bad news, and that's something that will eventually happen if you go too heavy on the QE...
Jeff
B. Inflation isn't the only issue with QE. When we buy back bonds from the banks, we generally do so at a loss. And the idea that the banks will turn around and use the money raised to lend to small businesses is laughable!
C. I acknowledged that hyper-inflation is bad news, and that's something that will eventually happen if you go too heavy on the QE...
Jeff
mulberryhawk wrote:yet you keep slating mervyn kings monetary policy stance......hmmmmm
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mister man
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Ferru123 wrote:But there are winners and losers...
Let's say you've taken out a massive loan. And let's say that there's 10% inflation over the next 12 months, but interest rates remain on hold. Inflation would mean that, in a year's time, your outstanding debt would be lower in real terms than would otherwise be the case.
But if inflation rises but your employer decides not to give staff a corresponding rise in pay, then inflation might make you worse off.
Jeff
mister man wrote:but if all parties cost are going up,wholesalers,retailers,public,and nobody is making extra cash just charging more to get the same, thats presuming wages for the public match inflation which they generally dont, how is it good.
right im with it now, inflation is good if youve taken out a massive loan, most probably because you cant afford things due to inflation.
but for the public, retailers and wholesalers etc that dont have a loan,its bad.
these financial markets are really strange.
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mister man
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- Joined: Tue Jul 27, 2010 2:10 pm
well yes if you buy the worlds first ever non depreciating asset car.
this good inflation is obviously mainstream
so inflation is good for people who have taken out a loan and bought a classic car that wont depreciate in value.
why dont people know about this, i feel a tv ad campaign coming on
this good inflation is obviously mainstream
so inflation is good for people who have taken out a loan and bought a classic car that wont depreciate in value.
why dont people know about this, i feel a tv ad campaign coming on
I didn't say that inflation was a good thing! All I was saying is that its effect is mainly to redistribute wealth, rather than to eliminate wealth...
As for our car example, my point is that inflation is great if you're a borrower, assuming that interest rates aren't increased (although awful if you've got savings!).
If you owe the bank £10K today, and if in a year's time that £10K is worth £9K in real terms, then you're quids in. OK, if you've put the £10K in a savings account (which would be a bit silly!), then your savings would also decrease in value. But in our current example, the bank have effectively subsidised the purchase of your car!
House price inflation is another case in point. When the house price crash happens, lots of people will lose tens of thousands. But people who bought when houses were cheap, and sold at the top of the market, have done very nicely out of house price inflation.
Jeff
As for our car example, my point is that inflation is great if you're a borrower, assuming that interest rates aren't increased (although awful if you've got savings!).
If you owe the bank £10K today, and if in a year's time that £10K is worth £9K in real terms, then you're quids in. OK, if you've put the £10K in a savings account (which would be a bit silly!), then your savings would also decrease in value. But in our current example, the bank have effectively subsidised the purchase of your car!
House price inflation is another case in point. When the house price crash happens, lots of people will lose tens of thousands. But people who bought when houses were cheap, and sold at the top of the market, have done very nicely out of house price inflation.
Jeff