Why We Need Inflation

Inflation at the Federal Reserve’s inflation rate goal of 1-2% per year
(not the extremely high inflation rates we are currently experiencing) can help stimulate the economy.

In this video, I define inflation and then discuss the ways in which inflation can help you and your wallet:

*Keeps Interest Rates Higher
*Easier to Pay Down Certain Types of Debt
*Stabilizes Wages and Employment
*Prevents Deflation also known as the Thrift Paradox

Higher variable interest rates on debt such as credit cards, help keep people from overspending and disrupting the supply chain (lower prices could cause unmanageable spikes in demand).

Higher interest rates now also give the Fed the ability to lower interest rates during times of economic slowdown, like they did during the COVID lockdown.

If interest rates had already been really low, it wouldn’t have done much to temporarily boost the economy and encourage spending.

Inflation is especially good for homeowners.

Since your interest rate and payment typically stays the same, but wages tend to inflate over time, it can become easier over the years to make payments on your mortgage.

Inflation also helps build up equity over time as inflation causes your property value to increase.

Inflation helps stabilize wages and employment.

Inflation prevents employers from slashing wages if they had a rough year

If an employer knows they will raise rates in the near future, they may be inclined to give an employee’s higher asking wage, knowing they will soon offset the operating cost of that employee.

Inflation makes it easier to calculate how much money you will need to retire.
It helps prevent deflation

The concept of deflation leads me into my next point, which is the thrift paradox. Inflation prevents people waiting to buy goods and services because they know it will be cheaper in the future.

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Trade Gingerly out there,

Savvy


sources:

www.investopedia.com/ask/answers/111414/how-can-in…

www.federalreserve.gov/faqs/economy_14400.htm

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