Kathryn Anne Edwards, an economist at the RAND Corporation, a nonprofit global public policy think tank, says, “In theory you can inflate away debt; it’s something we don’t recommend.” She says borrowers might want to curb their expectations about inflation’s potentially positive effect. Your debt’s value may technically be lower, but that won’t matter if your wages don’t keep up with inflation, and if your other household expenses also rise faster than your wages.
Inflation’s impact on debt only benefits you if your wages increase
The value of your fixed rate debt only declines if your wages also rise at a comparable rate alongside inflation.
As inflation continues to climb, it’s unclear whether wages will rise across the board. It’s possible that labor shortages and widespread employee demands for higher pay will force employers to increase wages, but it entirely depends on the industry or sector, experts say.
And if the rate of inflation rises past the rate of wages, your ability to pay for goods and services — consumer purchasing power — declines, as does your ability to repay debt.
However, you could be more insulated from certain rising costs than certain groups. For example, increases in healthcare costs hit the elderly harder than others, and childcare costs hit those with young children as opposed to those with older children.