Why is inflation desired and important?

Question

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

Answer 1

It is and isn’t everything has pros and cons. But why people like inflation is essentially counters stagnation you I mean if you have two options save money and have it grow or spend it before its worthless.

Obviously keeping stuff circulating is better for public. BUT real “big” reason why its championed is its essentially used to justify endless spending. What does it matter if we borrow 20 trillion today if we make it so gdp is 100 trillion tomorrow. This is why it gets pushed as a positive.

BUT it creates a variety of things its harder to build wealth I mean if you save 100 dollars every year and and 10yrs from now 1000 dollars is worth half as much. This is huge for retirement I mean 30-40yrs saving with first 10-20 rendered meaninglessness to inflation. Compounding this with another 20-30years living off it. People are finding it harder and harder to retire.

Back to specifically why banks like it fact is “assets hold value” when inflation hits that house bank lent 500k on is now worth a cool million.

BUT by devaluing average persons savings and net worth they force more people to rely on them thus getting more business.

It goes both ways there is positives and negatives. One of largest negatives is inflation not matching wages. Aka my industry sure over 10-15 years seen 1-2 dollar wage hike 10%. But rents gone up 20% gas prices gone from 30% food 50% throw in added expenses. Like back in day most people ran whatever 20-30 dollar cellphone plan. Now its hundreds with concerns like data and other tack on charges.

My point to all this is it is good and bad it encourage spending and growth and prevents wealth hoarding cuts into long term debt. BUT at same time it decreases wages makes harder to accumulate wealth/thus retire. Nothing comes without a price.