Inflation occurs when there is an increase in the general price level. In the past, high inflation rates were considered harmful to an economy. However, inflation has its benefits, and you can profit from it.
Here are the advantages and disadvantages of inflation:
• Advantages of inflation
Better account rates and savings
Are you an investor with a short-term goal? You can invest in a savings account with a high interest rate if you think that you need to access your funds soon. When you do that, your short-term savings could get a boost because increasing inflation usually prompts the Federal Reserve to increase interest rates. This means that you can get a better return from the money that is just sitting in your savings account.
Cheaper travel abroad
Higher interest rates tend to push the dollar higher and though things will cost more at home, purchases in foreign countries will be cheaper if you pay with dollars. This means that your hotel, food, and cost of travel will be cheaper.
You should celebrate inflation by going to the foreign countries that you have always wanted to visit.
As the price of goods and services goes up because of inflation, your wages will also increase. This is because a tight job market leads to wage growth. Not only do companies offer their new employees better wages, but they also start compensating their existing employees fairly.
If you have been looking for a new job, it means that you might be paid more at a new company, and you have a better opportunity for getting a raise.
Cost- of-living adjustments
Even if you do not have enough money to invest in stocks, inflation can still benefit your financial situation. Those who receive Supplemental Security Income and Social Security can see their monthly payments increasing once the Consumer Price Index goes up. This is known as a Cost of Living Adjustment and it puts more dollars in your pocket.
• Disadvantages of inflation
Things cost more
With inflation, the cost of almost everything starts to go up, including medical care, rent, and foodstuff. Unless your salary increases as much as the rate of inflation, you will be paying for costlier items with the same income, making survival difficult. Hyperinflation refers to very high rates of inflation.
Borrowing money will cost more
Most Americans borrow money at one point or another in their lives. When inflation rises, the Federal Reserve increases the rates of interest, making it hard to borrow money. These high rates of interest are usually passed on to the business and individual borrowers.
Think about how the decrease or increase of inflation can affect your life, including short-term savings, grocery bills, and earnings. When you understand how inflation works, you will be able to make wiser choices regarding your finances. The Zimbabwe trillion dollar bill is a good example of how inflation can get out of hand. With 14 zeros, this bill has the most number of zeros ever printed on a single note.