Who Loses From Inflation?

Abstract

To know who loses from inflation we must understand the social forces that cause it and be able to predict what will happen if we stop it. We do not know enough to make such a prediction, so my answer to the question is partial. Inflation should not be blamed for the fall in private consumption caused by the Organization of Petroleum Exporting Countries (OPEC), food shortages, or government spending. Rather it is the way we have resolved the conflicts created by the need to cut consumption. The main cost identified by economists is distortion of economic activity as people change their behavior to avoid holding cash; such effects are not severe enough to explain the intensity of public opposition to inflation. This could mean simply that people are deluded, blaming inflation for shortages, rather than the reverse. But here is another possible explanation: the most serious costs of persistent inflation may be that it destroys our confidence that society can solve its problems and creates fear that our social contract is falling apart. Coupled with the fear is resentment, based on suspicion by many that inflation treats them unfairly. Those who lose are all of us who share those fears and frustrations.