Why is inflation sometimes considered beneficial to the economy?
Answer (1)
While inflation is often viewed as a problem, a small and stable rate of inflation is actually considered beneficial to the economy. Inflation Being Beneficial to EconomyEconomists and central banks usually aim for an inflation rate of around 2% per year, which is often called "healthy inflation."There are several reasons why some inflation is good.First, it encourages people to spend and invest. If people know that prices will slowly go up, they are more likely to buy goods or start a business now rather than wait. For example, if a new laptop costs ₱30,000 today and is expected to cost ₱31,000 next year, many people will buy it now. This increases demand, which helps businesses grow and create jobs.Second, inflation helps reduce the real value of debt. For example, if a sari-sari store owner borrowed ₱50,000 to expand her business, a small amount of inflation means she will repay the loan with money that is slightly less valuable in the future. This makes it easier to pay off debts over time.Inflation also gives businesses a reason to increase wages. In the Philippines, when inflation rises, labor unions and workers often ask for cost-of-living allowances (COLA). This helps workers cope with higher prices, which in turn increases their purchasing power and supports economic activity.A good example of inflation being helpful was in the early 2000s in the Philippines. The economy was growing steadily, and inflation was between 2% and 4%. This made people feel confident about spending, borrowing, and investing.In summary, inflation is not always bad. A moderate amount of inflation shows that the economy is moving—that people are earning, spending, and investing. What makes inflation harmful is when it becomes too high or unpredictable. But if controlled properly, inflation can support economic growth and improve people’s lives.
