When inflation increases, people often feel the sting of paying more for groceries, gas, and almost everything else. Many may feel inflation is terrible because their paychecks are shrinking, and they don’t like paying more for the same items. But inflation also has positive benefits that may occur over time, such as:
Property values increase
Fixed-rate debtors' benefit
The risk of deflation minimizes
People buy now versus later
When inflation starts, people buy because they believe prices will continue to rise, and they don’t want to pay more for an item in the future. This action helps businesses increase their profits and often leads to hiring, which helps stimulate the economy.
The Federal Reserve uses inflation targeting to keep inflation under control by raising interest rates. When people hear that the Fed intends to raise interest rates, they often react by buying before it goes up.
Personal savings increases
People switch jobs
When inflation rises, people have less purchasing power and need to increase their incomes to maintain the lifestyle they’re used to. For many, switching jobs is a favorable decision they made due to their need to ‘keep up with inflation.’
Inflation is temporary and can impact people differently over time. It also signifies a healthy economy, even though inflation may feel uncomfortable. To help offset the impact of inflation, reduce your debt with variable interest rates, increase savings, and look for ways to save money on purchases.