ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In summary: Inflation will hurt those who keep cash savings and workers with fixed wages. Inflation will benefit those with large debts who, with rising prices, find it easier to pay back their debts.

Detailed explanation-2: -As inflation rises, it creates both winners and losers. Right now, it’s mostly losers. Inflation benefits those with fixed-rate, low-interest mortgages and some stock investors. Individuals and families on a fixed income, holding variable interest rate debt are hurt the most by inflation.

Detailed explanation-3: -Erodes Purchasing Power An overall rise in prices over time reduces the purchasing power of consumers, since a fixed amount of money will afford progressively less consumption. Consumers lose purchasing power whether inflation is running at 2% or at 4%; they just lose it twice as fast at the higher rate.

Detailed explanation-4: -Inflation raises prices, lowering your purchasing power. Inflation also lowers the values of pensions, savings, and Treasury notes. Assets such as real estate and collectibles usually keep up with inflation. Variable interest rates on loans increase during inflation.

Detailed explanation-5: -For example, individuals who derive their in-comes solely from Social Security are largely unaffected by inflation because Social Security payments are indexed to the CPI. Benefits automatically increase when the CPI increases, preventing erosion of benefits from inflation.