Inflation pushes us to make smarter decisions and often increases our real net worth. It seems like Republicans are stoking fear that inflation is our worst enemy. I notice misinformation and misunderstandings daily. I’m old enough to have lived through two cycles of major inflation and can credit these with much of my financial success.
Of course there are people who hurt by inflation and adjustement is not within their control. Most of them are very rich or poor. Chances are that if you are reading this blog then chances are that you are not one of them.
There are many ways that inflation helps us. These are just six examples:
- As an business investor, I usually make a small deposit to control a larger asset. For example, a down payment on a house or a business. This is called leverage. When the value of the asset goes up by over 20%, for example life houses did recently, my rate of return is over 100%. It more than doubles my net worth.
As a stock investor, inflation causes market price gyrations. But those who stay fully invested through the full cycle have always been rewarded.
My debt stays fixed. It used to be equal to my annual income. Now that my annual income increased sharply, debt is much less significant, maybe 6 months’ income, even though the dollar amount is the same.
- Inflation of gasoline prices is the most effective way to decrease usage. That improves the air quality that is literally killing people in cities and is effective in cutting carbon emissions.
- Inflation of food prices brings the agricultural industry into proportionate reality. The disproportionately low amount we spent of food compared to the rest of the world caused a range of problems that are not widely discussed in mainstream media. Our food supply is vulnerable when prices are low. Food quality and sourcing choices are better now at higher food prices.
- Inflation makes it unprofitable to hold large amounts of idle cash or bank balances. It pushes people into investing in the economy, providing capital to businesses and an economic boost to consumer market.
How has inflation affected you net worth? Other than the grumbling at the grocery store and the gas station, do you have any real reason to be concerned?