Q:
Who Benefits From Unexpected Inflation?
A:
Quick Answer
Borrowers benefit from unexpected inflation. Lenders, on the other hand, are hurt by unexpected inflation. Because of its destabilizing effects on the economy, unexpected inflation is of considerable concern to economic policymakers.
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Full Answer
According to Investopedia, inflation is the rate of increase in the general level of prices. As the price level increases, purchasing power is decreased. Thus, borrowers benefit by repaying debts with money that is worth less. When lenders are uncertain about future inflation, they charge borrowers higher interest to compensate for the loss of purchasing power caused by inflation. A primary function of the Federal Reserve Bank is to control the United States money supply with the goal of keeping prices stable.
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