KevonLooney , 5 months ago

2% inflation isn’t designed to hurt workers, it’s meant to encourage investment in the economy. It helps workers and people who are net borrowers.

If you are a net borrowers, you pay that back with future dollars. Inflation reduces the value of future dollars. Let’s say you get a 3% raise but inflation is 3%. Your boss is being stupid and you basically didn’t get a raise.

But if your mortgage is $2,000 per month, you now have 3% more money to pay it off. That’s because your mortgage doesn’t increase with inflation. So the inflation helps you pay off your loans.

It’s the same with businesses. Investors could either loan money out or invest directly in businesses. Higher inflation makes them more likely to invest in their businesses, because money sitting in the bank loses value due to inflation. This causes them to hire more people.

2% is a good sweet spot that encourages borrowing and investing in businesses, but isn’t too high. Obviously the problem now is that inflation remains above 2%, and there has been no relief from past increases. It would be much better if minimum wage was increased to help out people at the bottom deal with them.