Session 10: Inflation, the Hidden Tax

We live in a nominal world. Our wages are in nominal terms, we pay taxes on those nominal wages and the returns we earn on our investments are in nominal terms. In this session, I look at how inflation is measured imperfectly and with some bias, and how it affects our nominal payoffs. Specifically, I look at how much value we lose out of our investments, simply because of the inflation effect, and why it behooves us all to think about not only inflation's effects on the past but in the future.
Slides:www.stern.nyu.edu/~adamodar/pd...
Post class test: www.stern.nyu.edu/~adamodar/pd...
Post class test solution: www.stern.nyu.edu/~adamodar/pd...

[@Economivision]

This video, coincidentally, is very undervalued.

[@tanyaavasthi]

I actually feel exclusive because I have found these as opposed to the world. Absolute gold. Thank you prof

[@tiananicholetallant]

im learning so much! cannot say thank you enough!

[@santizd]

Inflation is caused by supply and demand changes triggered by the things mentioned in the video. Think the supply demand part is key to understanding the causation basic

[@Akerfeldt77]

Thanks again

[@pedromachado6198]

Thanks for your work ☺️ 😊😄

[@foodisareligion]

Hello sir - can we forecast inflation? Or any ckeeky ways to do it

[@maddysydney]

Check this Zerohedge article today which shows how gold leads inflation. So you can see that Fed allows the inflation to go to the same last peak of gold. This may be good future predictor - www.zerohedge.com/markets/how-fed-controlled-price-gold-1982-until-1995

[@slovokia]

The interesting question is if inflation is a tax, who is collecting that tax?

[@SubhamSingh-uy4ds]

this tax is automatically distributed among all participants in the economy

[@meghnasoni]

well, whenever the price of a good increases, you are paying a higher tax on it, when you buy it as your purchasing power has decreased . that's basically what inflation is

[@samuelleung2041]

That's a great question.
As described by professor, inflation is a hidden tax due to the lost of purchasing power. So in my humble opinion the ones who have benefited from or at least not beaten by inflation are:
1) Those who own assets and "stuffs" that over time can counteract this decline in purchasing power e.g. stocks of profitable companies, commodities, collectibles
2) Those who borrow money at a rate that is lower than inflation rate as the debt will be diluted or inflated away
Also I think I've read this from Milton Friedman:
3) Governments aren't unhappy to see inflation as long as it is moderate, stable and predictable. The overall tax revenue would increase over time with inflation. Imagine we are at a time with 5% inflation. Employees would demand for a 5% pay raise to offset their cost of living. Companies with pricing power would raise product or service prices for 5% to offset the increase in production costs etc. However, the tax rates set by the authorities likely won't change despite the augmented prices. Part of that augmentation will go into the government's pocket. Taxpayers are also easier to fall into a higher tax bracket, paying an even larger portion of your income as tax. And this tax isn't hidden, it's real.
That being said, inflation driven by economic growth and consumption needs is a good thing. As long as it is not out of control.
My $0.2 anyway :)