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
In addition to encouraging people to keep their money moving in the economy, inflation also makes things easier for people who are in debt. As inflation grows, earlier debts become easier to pay off. While most individuals and companies will have interest rates that outpace inflation, some governments (like the US) have debt where the interest barely covers inflation, and sometimes is even less than inflation. This means that government debt can actually “shrink” over time due to inflation.
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