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Would be there redistribution of wealth from actors with sticky prices to actors with more flexible prices under stagflation?

Economics Asked on July 3, 2021

Suppose there is inflation in our country, but we take a short term, thus some prices are sticky and there is non-positive "growth" of the real GDP. In other words, we experience stagflation.

If I understand correctly, non-positive "growth" of the real GDP means that our total wealth does not grow. BUT at the same time I know that stickness of prices allows some people/corporations to make some real short-term profits. They increase their personal wealth while total wealth of the economy does not increase. It seems logical to conclude that they must be increasing their wealth at cost of other actors. But who are these other actors? These people must be ones that experience losses. And who would experience losses under this situation? People who sell goods (including their own labor) and for some reasons (like contracts that take time to renegotiate, menu costs, etc) don’t rise prices on their goods fast enough. So there would be redistribution of wealth from actors with sticky prices to actors with more flexible prices.

Is my reasoning correct? Is my conclusion true?

One Answer

This would redistribute some resources from those who can't change their prices quickly enough, but studies (like this study here) show that the most important redistribution effect of inflation occurs along debtor/lender lines.

Answered by csilvia on July 3, 2021

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