If inflation is roughly 2% per year, wouldn’t it eventually devalue like the Zimbabwean dollar?
In: Economics
Yes, but it is going to happen so slowly that it isn’t really a concern. $1 being worth $1.02 next year and $1.05 the year after that isn’t a concern because the markets and wages have time to adjust to the inflation. A loaf of bread costing $1 this year and $2 next year isn’t an issue if your wages increase at the same rate.
Hyperinflation – like what happened in Zimbabwe – is a problem because it is happening so fast that the markets _can’t_ adapt. A loaf of bread costing $1 in the morning and $10 in the _afternoon_ is a big problem, because your wages become close to worthless as soon as they are earned.
Latest Answers