How does a sharp increase in inflation affect a person who has just withdrawn a considerable amount from a savings account or a retired autoworker on a fixed pension?

1 Answer | Add Yours

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

A sharp increase in inflation would hurt both of these people.  The first person might not be hurt as badly in the long term, though.

The person who has just withdrawn money is going to lose a good deal of the value of that money.  As inflation increases, the value of the money decreases.  This will get worse the longer they hold the money.  Therefore, they will want to spend it as soon as possible.

The person on the fixed pension is in long-term trouble.  That person is going to be getting the same number of dollars from their pension every month.  The trouble is that those dollars will keep getting less and less valuable.  This means that the person will be able to buy fewer and fewer things.

Thus, both of these people are hurt, though the one on the pension is probably going to be hurt worse.

We’ve answered 318,993 questions. We can answer yours, too.

Ask a question