<h2>It will levelize inflation, but may or may not make it worse over all</h2>
<p>In a fiat economy, the value of a &quot;dollar&quot; is fundamentally the ratio of how many dollars are available to be spent vs the available goods and services.  Since most economies are growing in terms of goods and services, the primary source of inflation in most cases is governments paying out more money in terms of government contracts, salaries, welfare programs, etc. than they are collecting in terms of taxes and fees.  So, if the economic growth of a country in a year is 5% but the government increased the number of dollars in the economy by 10% by spending more than they tax, then that extra 5% is going to land in people's pockets without any more stuff to buy with it giving the average person more money to spend vs what is available to buy causing the purchasing power of the dollar to go down.</p>
<p>Salary indexing to inflation does not directly increase inflation because you making more money from an employer does not actually put more money into circulation, but it does make sure that you get a fair % of that extra money that is now available compared to the goods and services that are now available.</p>
<p>That said, money in the economy that is not being spent on anything is at least in the short term removed from the economy.  So, if your employer is sitting on millions of dollars in extra profits that they have made from the extra money the government put into the economy and do not spend it, this could cause short term deflation, but this only lasts until they decide to spend it.  So, if your employer is sitting on less money because they are paying you more, then it will feel like paying you more is increasing inflation when in reality it is only levelizing it.  If they sit on it for years and then spend it all at once, then you've only delayed the inflation, and when it does hit, it will hit a lot harder.</p>
<p>Then there is the final question of how this affects economic growth which economists do not all agree on.  If paying you more increases economic growth, then inflation is decreased. If it decreases economic growth, then inflation is increased.  One perspective is that if money is distributed more fairly that the Median buying power goes up which will lead to the production of more goods and services which would decrease inflation.  The other perspective is that if businesses have more money for large investments that they will increase goods and services by investing in new ventures and better means of production. Which case is more true is generally circumstantial to the current state of the economy.  So there is no universal answer as to whether or not this will make inflation better or worse over all.</p>

CC BY-SA 4.0
2024-08-30T16:25:58.860Z
2024-08-30T16:31:12.190Z
2024-08-30T16:31:12.190Z
Nosajimiki
<p>I'm no expert, but my salary is indexed to inflation, and so is the legal limit my rent can be increased, and my parents' pensions. Doesn't forcing all these payments and prices to grow simply ensure that they will grow again?</p>

CC BY-SA 4.0
2024-08-28T20:38:43.417Z
It preserves the real value of your, your landlord's and your parents' income, without the need for additional action.  You are correct that this may prevent overall inflation falling as fast as it might (some prices are not controlled) though it also prevents overall inflation accelerating as fast as it might have done if these increases or at least some of them had been larger than inflation.
Henry
<inflation>
Does indexing prices to inflation not simply reinforce inflation?
Cain Goldhardt
# Does indexing prices to inflation not simply reinforce inflation?

(Asked by: username_0 on 2024-08-28)

I'm no expert, but my salary is indexed to inflation, and so is the legal limit my rent can be increased, and my parents' pensions. Doesn't forcing all these payments and prices to grow simply ensure that they will grow again?

**Tags:** inflation

> **Comments:**
> **username_1**: It preserves the real value of your, your landlord's and your parents' income, without the need for additional action.  You are correct that this may prevent overall inflation falling as fast as it might (some prices are not controlled) though it also prevents overall inflation accelerating as fast as it might have done if these increases or at least some of them had been larger than inflation.  

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## 1 answers

### Answer by username_2 on 2024-08-30. Score: 0 | Accepted answer

## It will levelize inflation, but may or may not make it worse over all

In a fiat economy, the value of a "dollar" is fundamentally the ratio of how many dollars are available to be spent vs the available goods and services. Since most economies are growing in terms of goods and services, the primary source of inflation in most cases is governments paying out more money in terms of government contracts, salaries, welfare programs, etc. than they are collecting in terms of taxes and fees. So, if the economic growth of a country in a year is 5% but the government increased the number of dollars in the economy by 10% by spending more than they tax, then that extra 5% is going to land in people's pockets without any more stuff to buy with it giving the average person more money to spend vs what is available to buy causing the purchasing power of the dollar to go down.

Salary indexing to inflation does not directly increase inflation because you making more money from an employer does not actually put more money into circulation, but it does make sure that you get a fair % of that extra money that is now available compared to the goods and services that are now available.

That said, money in the economy that is not being spent on anything is at least in the short term removed from the economy. So, if your employer is sitting on millions of dollars in extra profits that they have made from the extra money the government put into the economy and do not spend it, this could cause short term deflation, but this only lasts until they decide to spend it. So, if your employer is sitting on less money because they are paying you more, then it will feel like paying you more is increasing inflation when in reality it is only levelizing it. If they sit on it for years and then spend it all at once, then you've only delayed the inflation, and when it does hit, it will hit a lot harder.

Then there is the final question of how this affects economic growth which economists do not all agree on. If paying you more increases economic growth, then inflation is decreased. If it decreases economic growth, then inflation is increased. One perspective is that if money is distributed more fairly that the Median buying power goes up which will lead to the production of more goods and services which would decrease inflation. The other perspective is that if businesses have more money for large investments that they will increase goods and services by investing in new ventures and better means of production. Which case is more true is generally circumstantial to the current state of the economy. So there is no universal answer as to whether or not this will make inflation better or worse over all.


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