Costs of Inflation
| English | Chinese | Pinyin |
|---|---|---|
| anticipated | 预期到的 | yù qī dào de |
| unanticipated | 未预期到的 | wèi yù qī dào de |
| lenders | 放款人 | fàng kuǎn rén |
| interest | 利息 | lì xī |
| redistributes purchasing power | 重新分配购买力 | chóng xīn fēn pèi gòu mǎi lì |
| borrowers | 借款人 | jiè kuǎn rén |
| menu costs | 菜单成本 | cài dān chéng běn |
| shoe-leather costs | 皮鞋成本 | pí xié chéng běn |
| savings | 储蓄 | chǔ xù |
| pension | 养老金 | yǎng lǎo jīn |
| hyperinflation | 恶性通货膨胀 | è xìng tōng huò péng zhàng |
Inflation picks winners and losers
- Inflation doesn't hurt everyone equally — and some people even gain.
- The key is whether people saw it coming.
- A surprise inflation quietly moves wealth from one group to another.
- Understanding who wins and who loses is the heart of this topic.
Anticipated vs unanticipated
- Anticipated 预期到的 inflation is expected, so people plan — workers ask for raises, lenders charge higher interest 利息. The harm is small.
- Unanticipated 未预期到的 inflation is a surprise that cannot be planned for.
- A surprise redistributes purchasing power 重新分配购买力 between borrowers 借款人 and lenders 放款人.
- Borrowers gain (they repay with cheaper money); lenders lose (the dollars back buy less).
Who gains, who loses?
Unanticipated inflation helps borrowers and hurts lenders and cash savers, and adds real costs like menu and shoe-leather costs.
Which kind of inflation does the least harm, because people can plan for it?
When inflation is expected, workers and lenders build it into wages and interest rates.
Unexpected inflation tends to:
Borrowers repay with money worth less; lenders get back dollars that buy less.
The running costs
- Menu costs 菜单成本 — the effort of changing prices: reprinting menus, tags, and catalogues.
- Shoe-leather costs 皮鞋成本 — holding less cash and making more trips to the bank, because cash loses value.
- Inflation also erodes savings 储蓄 held as cash and fixed incomes like a pension 养老金.
The cost of reprinting menus, tags, and catalogues when prices change is called ______ costs.
Menu costs are the real effort of updating posted prices during inflation.
Select all real costs that inflation imposes.
Menu costs, shoe-leather costs and eroded savings are real harms; inflation does not raise real output.
When inflation runs wild
- Worked idea. You lend 1,000 at 5%, expecting 1,050 back. But surprise inflation is 8%, so the 1,050 buys about $1{,}050 / 1.08 \approx 972$ — less than you lent.
- You (the lender) lost; your friend (the borrower) gained.
- At the extreme, hyperinflation 恶性通货膨胀 (often over 50% per month) makes money almost worthless.
- People rush to spend, savings vanish, and confidence in money collapses.
You expect 1,050 back on a loan, but inflation is 8%. In real terms the 1,050 buys about 1,050 ÷ 1.08 = how much? (round to the nearest dollar)
1,050 ÷ 1.08 ≈ 972 — less than the 1,000 you lent, so the lender loses.
Under hyperinflation, people tend to spend money quickly because it loses value fast.
Money loses value so fast that holding it is a loss — so people rush to spend it.
Anticipated inflation does little harm; unanticipated inflation redistributes wealth — borrowers gain, lenders lose. It adds menu and shoe-leather costs and erodes cash savings. At the extreme, hyperinflation destroys the value of money.