Inflation is not neutral — it redistributes income and wealth in ways that benefit some and harm others. Understanding who bears the burden of rising prices helps explain why inflation is a political as much as an economic problem.
Fixed-income earners and savers suffer most. If your salary does not rise with inflation, your real purchasing power falls. A nurse earning the same nominal salary year after year is effectively getting a pay cut every time inflation runs above zero. Pensioners on fixed pensions face the same problem unless their pensions are index-linked.
Cash savers are another group that loses out. If you hold £10,000 in a savings account earning 1% and inflation runs at 5%, your money is losing 4% of its real value every year. The nominal amount stays the same, but what it buys steadily diminishes.
Low-income households are disproportionately affected because they spend a higher share of their income on necessities — food, energy, transport — which tend to be the categories where price rises are most frequent and most severe. High-income households can reduce spending on luxuries; low-income households have far less flexibility.
Debtors, by contrast, can benefit from inflation. If you have a fixed-rate mortgage and inflation rises, the real value of your debt shrinks — you are repaying with pounds that are worth less than when you borrowed. The government, as the largest debtor in most economies, similarly benefits when inflation erodes the real burden of sovereign debt.
Asset owners gain in nominal terms. Property prices and stock values tend to rise with inflation (though not always in real terms), so those who own these assets see paper wealth increase even as the purchasing power of cash erodes.
This is why inflation is often described as a regressive tax: it tends to harm those with less, who have fewer assets and less bargaining power to demand higher wages.