The Inflation Tax
A study by Laurence Kotlikoff and his colleagues estimates that permanent 5% inflation would lower household lifetime spending by 3.62%. Permanent 10% inflation would lower lifetime household spending by 6.82%. Even if inflation ran permanently at the Fed’s 2% target, consumers would still feel a pinch, with a 1.5% reduction in lifetime household spending. Social Security recipients are particularly at risk. Persistent 4% inflation is equivalent to about a 2% permanent drop in spending power for Social Security recipients. If inflation were to surge to 10% and remain there, it would effectively lower Social Security benefits by about 5%.
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