| It's not entirely true that inflation effectively results in a pay cut. It's true only if you are buying the exact same things today, that you were buying, say a decade ago. This is true for some things such as food, housing etc. However for other things such as computers, gadgets, medicines, cars, etc. are much better today than they were before. For these things, you get much more for the same price(taking inflation into account). For example, phones used to be only communication devices; but now they are also a camera, entertainment device and even a computer. Others, such as medicines, they have become cheaper and much more effective. In short, improvements in science and technology beat the effects of inflation. In some markets it can actually cause a deflation.
For example, computers used to cost thousands of dollars, but now you can buy a much better one for a few hundred bucks. Inflation is bad, only when stuff that you buy doesn't improve over time. Perhaps one could even show that inflation is somehow related to the introduction of newer and better products in the market. For example a new car, with a more fuel efficient engine, will likely cost more than the old ones.
However I don't have enough evidence to justify this claim. |