Who is most likely to benefit from inflation?

A person with a fixed-rate loan is likely to benefit from inflation because their payments remain constant regardless of how inflation affects prices in the economy. When inflation rises, the purchasing power of money decreases, meaning that the amount they pay on their fixed-rate loan is effectively worth less over time. This situation allows them to pay back their loan with "cheaper" dollars, as the real value of their loan payments diminishes in relation to rising prices. Thus, a fixed-rate loan shields them from the negative impacts of inflation, making it an advantageous financial arrangement in such circumstances.

In contrast, a variable-rate loan can lead to higher payments as interest rates may increase in response to inflation, negating any potential savings. A person saving in a bank account may earn interest, but this often doesn’t keep pace with inflation, leading to a decrease in the real value of their savings. Similarly, individuals on a fixed income will struggle as rising prices mean their purchasing power diminishes, making it difficult to maintain their standard of living.