Actual inflation is an unexpected rate of inflation whereas anticipated inflation is the predicted inflation. In the scenario where actual inflation exceeds the anticipated inflation, then the precautionary measures will be ineffective. When inflation is higher, fixed income recipient and savers will lose their purchasing power due to lesser real wages. On the contrary, unexpected inflation benefits the producers as they could increase the prices of their commodities in a given time, and borrowers who can repay their debts at a lesser cost than they borrowed, hence both parties experiencing a lesser impact on their purchasing power.
Given the long run, unexpected inflation harms the wealth redistribution in a country’s economy. For instance, people who take mortgages at fixed interest rates have to pay lesser than they had been contracted hence wealth being redistributed from the banks to other financial entities in this case homeowners. The economy is further affected when businesses tend to redirect their investment towards acquiring hard assets hence reducing their capital potential for economic growth. Besides, periods of inflation impact consumer purchasing power and deters them from involving themselves in productive activities. Businesses, therefore, pull back on investing in long-term projects due to the price information, returns and profits uncertainty of the market due to the unexpected inflation. The country's economy is affected by the investors and consumers protecting themselves from the inflation crisis.
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In conclusion, unanticipated inflation will directly impact both my employer and I. Lower actual inflation than anticipated inflation, increases the real wages and workers gain at the expense of the employer. This raise decreases the amount of labor required hence increasing the unemployment rate and this would pose a threat to my job position. On the contrary, higher than anticipated inflation will lower the real wage rate and the employer gains at the expense of the workers. Thus further increases employment rate through an increase in the quantity of labor required.
