Explain how inflation creates winners and losers in society. Give examples.
Answer (1)
Inflation doesn’t affect everyone in the same way. Some people benefit from inflation, while others suffer. This creates a situation where there are winners and losers in society. Inflation helps borrowers and businesses in the short run but harms savers, fixed-income earners, and low-income families. That’s why managing inflation is important to prevent economic inequality from worsening.WinnersLet’s start with the winners. One major group that benefits from inflation is borrowers. If someone borrowed money at a fixed interest rate, and inflation rises, they can pay back the loan with money that is now worth less. For example, imagine someone took a housing loan for ₱1 million with a 5% interest rate when inflation was 2%. But if inflation jumps to 6%, the real value of their monthly payments is now lower. They are paying the bank with money that buys less—so the real cost of their debt decreases. Businesses may also benefit in the short term. When inflation rises quickly, companies may raise their prices before increasing wages. This gives them higher profits until wage adjustments catch up. For example, a rice supplier in Bulacan may increase the price per sack of rice before they raise their workers’ salaries.LosersOn the other hand, savers and fixed-income earners are the losers. If you keep money in a regular savings account with 1% interest, but inflation is 5%, the value of your money goes down over time. In the Philippines, senior citizens who rely on pensions or families who save cash at home suffer because their money cannot buy the same goods anymore.Teachers, pensioners, and minimum wage workers also struggle. If prices increase faster than salary adjustments, their income can't keep up with expenses. For instance, if the cost of LPG, rice, and medicine goes up, a teacher’s fixed salary might no longer be enough for all household needs.
