I’ve read that many banks want a certain level of inflation and I don’t really see why. Why is important to banks that a stable product costs more tomorrow than today?
Is it to make people spend their money more since storing it will eventually make is worth less?
In: Economics
I disagree with the many people here that say inflation is a good thing unless you like losing the value of your earnings year over year. Wages are the last thing to get increased, prices increase first, and then businesses increase wages. No business owner with any sense is going to increase their overhead before their income increases. So the regular person is kept on a treadmill trying to keep up with increasing prices while slowly getting wage increases, falling ever behind. While those at the top get to keep accumulating more and more as wages lag price increases. Look around (I’m assuming you are from the US), is housing more affordable, or are people making equivalent wages to what previous generations have? The answer is no, houses cost more and people make less, that is an effect of inflation. I don’t buy the argument of inflation being good because it encourages spending, if you need food, a car, a house, or most anything other than luxury items you buy them. I’ve yet to meet anyone who buys goods based on their future value vs what they pay for it now (real estate/gold being the exception).
If you look at the time period of the 1800’s-early 1900s (a deflationary period) people still got wages increases, any money they saved gained purchasing power (cost of stuff went down). Compare that to today where saving money is losing purchasing power, while maybe the number that you receive for wages may be increasing, the value of your wages decrease.
I believe the purpose of why is so the government can spend well beyond their means, and when they have to pay back what they promise they use the inflated dollars, so someone else gets to eat the true cost. By the way that someone is you, me and retirees (2x).
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