What are benefits of high inflation (5%)?

Answer 1

First off, what one economy considers "high" may not be considered high by another, e.g. in the 70s when inflation was 15%-20%.
in the uk we have an inflation target of 2%, but there's no reason why it couldn't be, say, 5%. people, if they know that inflation is going to be higher, then they will price it into their decisions, e.g. wage negotiations. most economists concur that unpredictable inflation is worse than high inflation.
off the top of my head, there are a couple of benefits of high inflation.
1) funny things happen when inflation becomes negative - consumers stop spending money on big items, ie. why buy a car today if it'll be cheaper in 6 months time? this will cause a recession
2) in times of recession, central banks need to cut interest rates. higher inflation results in higher nominal interest rates, and high interest rates allow the CB to cut interest rates a couple more times in order to encourage growth.
of course, as with all economics, benefits have to considered in relation to the relevent costs.

Answer 2

High inflation benefits people who are in debt, since inflation lessens the true value of that debt you owe. And that is probably the only benefit.

Answer 3

There are often losers and winners for every economic state.When there is high inflation, people who have locked in mortgage rates or loans with fixed rates will have a benefit because the money they have to pay back is worth less, so in essence they are paying back less in absolute purchasing power especially compared to borrowers with floating rates. Exporters thrive when the currency loses value against foreign currency as there will be more demand for their goods from abroad.

Answer 4

High rate of inflation is not good for any economy.It makes exports difficult and life of people miserable.Inflation is sometimes called"forced saving".However a low rate of inflation keeps increasing effective demand for goods and services and industrial progress is sustained.An inlation rate around 1 percent is considered good because due leads and lags in the economy ,it may not make life difficult.

Answer 5

Actually you attract more foreign investment with your weakened money, of course, if your country takes investment in dollars and your money value is less against dollars.

Otherwise, inflation as such does not do any good. More negative than positive. Some agriculturists gain and some retailers gain. But overall standard will be down for the country.

Answer 6

High inflation is in the country I come from. One of the highest in Europe.

It seems to me that benefitsto such kind of problem is none, as in my country it is really declared as a Problem, the highest priority of the government to deal with.

Answer 7

It would seem obvious that low inflation is good for consumers, because costs are not rising faster than their paychecks. But recently commentators have been saying that "Low inflation introduces uncertainty". This is nonsense.

During the high inflation "Eighties" I remember commentators saying "High Inflation introduces uncertainty". This is not quite true either. The truth is that steady inflation, if it can be relied upon to remain steady, does not introduce uncertainty. Changing (fluctuating) inflation rates is what introduces uncertainty.
Eliminate Uncertainty

But there is no guarantee that if inflation is high it will not go higher... or lower. So there is the uncertainty. The only sure way to eliminate uncertainty is to have no inflation at all and that can only be accomplished by a "Gold Standard".

Under a Gold Standard, the government owns a set number of ounces of Gold and issues currency for that amount of money. The only way to increase the money supply is to increase their holdings of Gold. This forces fiscal responsibility on the Government.
Disinflation

But disinflation (decreasing levels of inflation) also encourages people to reduce high debt loads and become financially responsible. As inflation comes down it becomes less advantageous to carry high debt loads. This is probably the reason for the current "hue and cry" among the popular press. The writers are probably up to their ears in debt and hoping to pay it off with ever cheaper dollars.

Have you ever considered that inflation is a form of consumer "dishonesty"? You agree to borrow "X" number of dollars and pay it back with interest. But you hope that the value of those dollars evaporates so you can pay your debts with worthless paper? In Rom 13:7 the bible says, Pay all that you owe...

Inflation actually encourages debt because you can pay it off with "cheaper dollars". At first glance this appears to benefit the debtor but if you think of Debt as voluntary servitude, it shouldn't be encouraged.

Deflation (prices falling below zero) on the other hand can be downright disastrous for those with high debt, because their debt is in a fixed number of dollars but each dollar is more valuable than when the debt was first incurred.
Who benefits from Deflation?

Obviously creditors benefit. They loaned money and are getting paid back with dollars that have a greater purchasing power. This scenario is distasteful to those with a "Robin Hood" mentality i.e. steal from the rich and give to the poor.

But Deflation (falling prices) also benefits low debt consumers and those on fixed incomes, because they receive a fixed number of dollars but can buy more with each dollar .

The periods in our history with the lowest inflation have also been when our Gross Domestic Product has grown the fastest in terms of "Real Dollars".

(Real Dollars are measured after prices are adjusted for inflation or deflation).

In addition to encouraging fiscal responsibility on the part of consumers, low but stable inflation (or even deflation) is also good for the long term economy, because it allows producers to know their costs. This predictability allows producers to generate reliable profits which will eventually result in a strong healthy economy.

Inflation is bad for the economy because economies built upon debt and encouraging consumers to go further into debt eventually crumble of their own weight. As more and more consumers get over burdened by debt, they declare bankruptcy, introducing uncertainty to the creditors and robbing them of their rightful income.

Somehow it is difficult to feel compassion for the "rich creditors" but everyone with a bank account is a creditor. How would you like it if someone who owed you money failed to pay you back? Or you were never sure if you would be able to take your money out of the bank? What would this uncertainty do? You would probably be less likely to put money in. Banks feel the same way, if the chances of being repaid decrease they are less likely to make loans and that decreases the health of the overall economy.

Rapidly falling or rising inflation is usually a sign of a suffering economy with high unemployment and a lack of spending power (i.e. recession/ depression). But it is the change that is the problem not the altitude (or lack of it).

The Historical Inflation Rates show that even when we have had price deflation (falling prices) the country has been prosperous if the reason for the falling prices is that goods are being produced so economically that prices can fall and producers can still make a profit. This generally occurs after major productivity enhancements like the invention of the assembly line or the completion of the transcontinental railroad.

Disinflationary pressures in the late 1990s and early 2000s were most likely the result of cheap productive capacity in China and other former communist countries coupled with the deflationary forces of the 9/11 attack and the stock market crash.

Has this article been helpful? We appreciate your feedback.

Subscribe to our FREE monthly E-zine
and we will keep you up-to-date on what is happening in the area of inflation, interest rates and market trends.
Main Article List






Current Consumer Price Index (CPI-U) 208.936



Current Inflation Rate
3.54%



Released November 15, 2007 for October 2007
Provided by InflationData.com



Is your mortgage eating you out of house and home? Use Financial Web's mortgage calculators to see how much you could be saving or losing on your largest expense.

Deflation benefits low debt consumers and those on fixed incomes, because they receive a fixed number of dollars but can buy more with each dollar .



Can't find what you are looking for?
Try a Google Search



Web
InflationData.com
Fintrend YourFamilyFinances

Answer 8

Do not skip dinners. Your body will revert to help starvation mode and store even the littlest amount of fat content in that which you subsequently eat, causing you to slow down your metabolism and put on weight.

Answer 9

For wine-lovers, order one glass instead of splitting a bottle.

Answer 10

1