Inflation is a nefarious way to finance spending without hidden consequences and distortions.
Is this actually true? Do you have any articles that could describe this effect in more detail?
As I understand it, inflation by itself doesn't seem sufficient to describe people's bottom lines - in theory, if wages, prices, and stocks all go up by 10% in one year then 10% inflation has been neutral to the poor, neutral to holders assets correlated with the stock market, positive to fixed-rate debt holders, and negative to fixed-rate asset holders (like the lenders for that debt).
Right now we're seeing a major crunch for labor on the low end, like fast food joints offering higher wages than ever with bonuses even for just interviewing in some cases. So it doesn't seem to me that the poor are necessarily being hurt, at least not yet.
> High inflation tends to lower the share of the bottom quintile and the real minimum wage -and tends to increase povertyL
Just look at what its like to be poor in a high inflation country.
https://openknowledge.worldbank.org/bitstream/handle/10986/1...
Another commenter mentioned that labor shortages on the low end might be related to stimulus payments and pandemic unemployment payments - if so then I suppose what we'd expect is that if inflation remains high over the next year as we go without stimulus and pandemic unemployment payments, any labor shortages (and corresponding boost in wages) will quickly end, and we will proceed to observe the cited effect - that the remaining inflation hits the poor the hardest.
Those with <= 1y income in the bank (most people) are more likely to just hold cash above what goes into their retirement fund.
Who's selling that stock if the rich are buying it? From what I can tell it's mostly companies issuing new stock and leaving the money in their bank account and inflation is eating away at that money. Here is the thing, given a high enough inflation rate that money will be used to hire people. If you want to stick it to the poor that is an extremely ineffective way to do it.
Real wage growth and inflation are linked, of course, but almost certainly not anti-correlated (high inflation => low or negative real wage growth) as you are suggesting. What data I could find that directly compared these actually suggests the opposite, that lower inflation tends to result in lower wage growth.[1]
It's not clear what you mean by the "poor" here, but it's well understood the majority of Americans do not have significant savings (cash or other liquid assets). This federal reserve study[2] puts the percentage of American households that have <$400 at ~24%. 60% of households have <3 months of savings.
When looking at just the bottom half of Americans, however, 40% have less than $400 saved and 76% have less than 3 months of savings.
[1] https://www.stlouisfed.org/on-the-economy/2015/november/rela... [2] https://www.federalreserve.gov/econres/notes/feds-notes/asse...
Inflation will lead to higher rates so you won't be able to refinance or get a cheap mortgage. This will drive home prices down which may or may not offset the increase in interest expense.
Here's credit card debt based on income. I'm guessing most of this debt is a kind of rolling balance for regular expenses. I doubt wages would be able to keep up w/ consumer prices. I don't think people think inflation will somehow get them out of their debt if they're using it for every day purchases that have now become more expensive
$290,000 and more – $12,600
$152,000 to $290,999 – $9,780
$95,00 to $151,999 – $6,990
$59,000 to $94,999 – $4,910
$35,000 to $58,999 – $4,650
Less than $34,999 – $3,830
Here is a chart of real, disposable personal income: https://jabberwocking.com/wp-content/uploads/2021/05/blog_di...
Student debt is a thing but the amounts and repayment rates are so low nobody was hurting that much anyway (the guy who's 60k in the red for a journalism degree is not in any way typical).
Even with stupidly high inflation a car loan will never make you money because you can't liquidate because you'd need to buy back in.
If you've got credit card debt or a payday loan or something else with a stupid high interest rate then anything short of Venezuela levels of inflation doesn't really help you. You get marginally less screwed but in the bigger picture you get more screwed because your day to day cash-flow is worse making the payments harder even if they're shrinking relatively
The only people being helped by debt being inflated away didn't need the help to begin wit. Everyone else is being screwed because any savings they have will go poof and their standard of living will be knocked down because wages always lag inflation.
A little inflation is fine/good but enough inflation that people are feeling the squeeze in the short term (you'd have to be blind to social media to not see this is the case) is too much.
Please spare us the strawmen you're fighting in your head. Most US households own their own home (65+%). The vast majority of households with incomes above the median own their own home (79.4%) and even the majority of households BELOW the median own their own home (51.8%)[1]. So I'd also like you to spare us your made up evidence.
> Student debt is a thing but the amounts and repayment rates are so low nobody was hurting that much anyway (the guy who's 60k in the red for a journalism degree is not in any way typical).
Average student loan debt for a new grad is ~$30k. Hardly trivial.
> Even with stupidly high inflation a car loan will never make you money because you can't liquidate because you'd need to buy back in.
Is your belief that inflation is good for debt holders because they can earn money on the assets that back up the debt? The point is that debt is denominated in nominal dollars.
1: https://www.census.gov/housing/hvs/files/currenthvspress.pdf
Actual inflation hurts those who own debt assets and nobody else. Everything else isn't inflation.
If prices go up but don't feed through to income rises then two things happen - one you don't have an inflation, you have a redistribution, and two those price rises are unsustainable because you won't be able to sell your output as there is insufficient overall income to purchase it.
In a true inflation income rises along with prices so wage earners, and firms and indexed pension holders are protected. As are those living off investment earnings (since they just go up as firms earn more). Debts are rotted and debt holders (ie bankers) lose out.
The neoliberal trick has been to blow up a scare about bottleneck inflation as the supply side bat signal goes up but before the increased supply/constrained demand response kicks in and forces prices back down again. All in the hope of getting a policy change that will stop the income changes that would help increase the wage share and start the debt rotting process.
Wealthy people are the debt holders. Don't be their bag carrier.
This is not a given and far from necessarily perfectly correlated. Wage earners can still be hit.
There are several assumptions you make here, and none of them should be taken for granted.
And, well, people who hold cash (unless you classify those as debt-holders, which, sure, yeah, but that should be pointed out) or happen to invest in the wrong thing are also hurt badly.
So "true inflation" is no different than a "true scotsman."
Wealthy people invest, buy properties, and have assets that grow in value with inflation.
The poor have cash in a bank or in their closet that becomes increasingly worthless with inflation. Their rent, gas, and bread prices go up by large amounts, but if they're lucky, they might get an extra 2 cents an hour for their work.
If the seller of the asset is a worker, then you have already lost.
If the seller of the asset is a rich person, then you just are back to square one as the second rich person has the inflation problem.
If the seller of the asset is a company, then it has to do something with the money as inflation erodes it, but it cannot do anything with the money because hiring people would give it to workers again, which means you lost the hot potato game again.
The company does share buybacks and puts it back into the hands of a rich person.
Source for this? Wealthy people invest in assets that also go up with inflation. Sure they may have some debt assets but I bet that is not the large part of their portfolio
however neither of you are really correct. Inflation hurts the middle class the most.
Wealthy have diverse portfolio's that factor in inflation, the poor are most likely debt ridden and live paycheck to paycheck, with inflation your debt becomes less expensive
The middle class however often have the most cash assets in traditional savings accounts, they also are in that sweet spot of not living paycheck to paycheck but not really having enough money to have a large diverse investment portfolio
Inflation is a tax on savings, anyone that has savings is hurt by inflation that normally is the Middle Class
However, the poor cannot buy Ferraris, iRobots, or Toto toilet seats. For discretionary spending portions of high-MPC, there are often bad financial decisions made by the poor to buy overpriced, high-depreciation, low utility, and short lifetime goods and services.