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:
Employers often increase wages for their current employees and new hires to attract and retain workers during inflation. For a period, inflation may increase job openings at employers with lower wages until they increase their wages too. Higher wages bring more money into the economy as workers have more money to spend.
Property values increase
Pre-existing homes, automobiles, and some investment strategies increase in value during periods of inflation.
Fixed-rate debtors’ benefit
The payments and interest rates of fixed-rate mortgages and other debts remain the same as the property’s value increases as inflation rises.
The risk of deflation minimizes
Deflation is when prices fall. During periods of deflation, people stop buying because they believe the prices will fall even more. Deflation often leads to fewer sales, layoffs, and wage decreases which is the opposite of what occurs during inflation.
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
When prices are higher, people tend to cut back spending on non-essential items and save money instead.
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 may only have done with the 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.
SWG 3011414-0723b The sources used to prepare this material are believed to be true, accurate and reliable, but are not guaranteed. This information is provided as general information and is not intended to be specific financial or tax guidance. When you access a link you are leaving our website and assume total responsibility for your use of the website you are linking to. We make no representation as to the completeness or accuracy of information provided at this website. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information and programs made available through this website.
In addition, Serenity Wealth Management specializes in providing strategies and guidance for those who are seeking a better lifestyle in retirement. If you have retirement savings of five million dollars or $50,000, we can ensure it works as hard. As a result, we offer our experience and knowledge to help you design a custom strategy for financial independence. Contact us today to schedule an introductory meeting!