Inflation leads to a situation where prices go up in an unprecedented manner and as a result, prices of other essential items go up. Such a situation is difficult to control and usually ends in anarchy.

The outcome of Inflation is that it results in redistribution of income and wealth because the prices of all the factors of production do not increase in the same proportion.

Inflation has varying degree of effects on different segments of the society. This is due to the fall in the value of money. When price increases or the value of money declines, some groups of the society gain, some lose and some stand in-between. To be precise, there are two economic groups in every society, the fixed income group, and the flexible income group.

People belonging to the former group lose and those belonging to the latter group gain. The reason is that the price change in the case of goods, services and assets, etc. are not uniform. In times of inflation, most prices begin to rise, but the rates of increase of individual prices differ much. Prices of some goods and services rise faster, whereas price of other rise slowly and of still others remain unchanged.

During inflation the flexible income groups, such as businessmen, traders, merchants, and speculators get handsome gains due to unexpected profits that arise because prices rise faster than the cost of production.

Whereas the fixed income groups, such as workers, salaried persons, teachers, pensioners, interest and other income groups are always the losers during inflation because their incomes do not increase as fast as the prices.

Inflation has sometimes one-sided effect in the sense that it puts an economic burden on those sections of the society who are unable to bear it.

 Inflation affects different groups of society in the following ways:

Debtors and Creditors:

During inflation, the debtors gain and on the other hand, the creditors lose. The debtors stand to gain because they had borrowed when the purchasing power of money was high and they have to return the loans when the purchasing power of money is low due to inflation. The creditors, on the other hand, stand to lose because they get back less in terms of goods and services than what they had lent.People who earn wage and salary

Daily Wage and those who earn monthly salary usually suffer during inflation because wages and salaries do not rise in the same proportion to cost, living, and price of essential commodities and there is a delay in between a rise in the price level and a rise in wage and salary.

Fixed Income Groups:

The fixed-income groups suffer the most during inflation. Persons depending on savings pensioners, people earning interest from fixed deposits and rent earners suffer during periods of rising prices because their incomes remain fixed.

Flexible Income Groups:

The Flexible income groups, i.e. the producers, traders, entrepreneurs, speculators, etc., stand to gain during inflation, because firstly, they earn unexpected profits because prices rise at a faster rate than the cost of production, secondly, They gain because the prices of their inventories go up, thus increasing their profits, and thirdly, They also gain because they are normally borrowers of money for business purposes.

Investors:

Inflation affects investors depending upon the asset in which the money is invested. If the investors invest their money in equities, they are gainers because profit rises as soon as the price of equities rises. Similarly, if the investors invest their money in debentures and fixed income bearing securities and bonds, etc, they tend to lose because income remains fixed.

Farmers:

Farmers are the ultimate gainers during inflation because the prices of the farm products tend to increase faster than the cost of production, thus leading to higher profits during inflation. As a result, inflation divides the income and wealth in such a way that it harms the interests of the consumers, creditors, laborers, middle class and fixed income groups on one hand and on the other hand, it is favorable to the businessmen, traders, debtors, farmers, etc.

Inflation in society creates a negative impact because it makes the rich richer and the poor poorer; in other words, it transfers wealth from the poorer sections of the society to those who are at the higher hierarchy of the society.