A little inflation makes it easier for employers to gradually cut real wages, as employees object less vigorously to wage rises that are less than inflation than to equivalent wage cuts in the absence of inflation.monkey wrote: ↑Fri Feb 05, 2021 2:52 pmA little bit of inflation is a good thing, which is why the target is set at 2%. Too low and it can encourage stock market and housing bubbles. Below zero and people don't spend money, because why would you buy something today, when it would be cheaper tomorow?
Inflation also gradually converts wealth into taxable income or capital gains. If you have $100 in the bank and get no interest on it and there is no inflation, the value of your bank account is unchanged and you owe no tax. If you have $100 in the bank and get 10% interest and there is 10% inflation, the real value of your bank account is unchanged but now you owe tax on $10.