1. Inflation
Who wins & loses from inflation

2. Falling Purchasing Power $100 in 1958 => need $825 in 2015
Inflation calculator on my website 

3. INFLATION Economic condition of Average Prices Rising
Lowers the purchasing power of a dollar
Economic numbers must be adjusted for inflation
Real numbers – adjusted for inflation
Nominal numbers – NOT adjusted for inflation
A country sells 10 pairs of blue jeans in both 1999 & 2014.
Blue Jeans cost $20 in 1999 and $40 in (assume same exact jeans)
What is the change in nominal & real GDP for 2014?
Nominal GDP doubles from $200 => $400
Real GDP is unchanged = 10 pairs of jeans sold

4. COLA = cost of living adjustment
Consumers notice
inflation when their
paychecks start to
buy less!
COLA = cost of living adjustment
Social security benefits has an annual COLA

5. 2-Types of Inflation Demand-Pull Inflation: Cost-Push Inflation
Too many dollars chasing too few goods (caused by printing money)
Spending increases faster than production
Demand Side Inflation
Cost-Push Inflation
Large increase in cost of factors of production (input prices)
examples: price of oil, labor, steel, etc….
Supply Side Inflation (Occurred in late 1970’s in USA)

6. Inflation: Expected vs. Unexpected
Unexpected or sudden inflation is what really creates winners & losers in our economy
In theory, when actual inflation is predictable, workers, employers, savers, lenders & borrowers have time to adjust & plan.
Therefore, expected inflation is less harmful
What you
Expect?
Actual
Inflation

7. Who is Helped by inflation?
People in large amount of Debt
Fixed interest rates on Mortgages, Car Loans, Student Loans
Loan stays the same in Nominal Dollars
Loan falls in Real Dollars

8. Who is Hurt by Unexpected Inflation?
People on a fixed income
$500 a month pension +>Nominal dollars unchanged=> real income falls
Minimum wage workers
Wage increases usually increases lag inflation
Savers
Interest earned does not cover inflation rate…

9. Why Inflation is Bad? Difficult for Business to plan
price goods/services
Lowers value of our currency
Lowers purchasing power (real value of money)
Raises long term interest rates