Anticipated vs. Unanticipated Inflation

Anticipated inflation:
Changes in price levels are widely anticipated and factored into all sorts of contracts. A low level (2-3%) is considered fine for a growing economy.

Unanticipated inflation:
Inflation that comes as a surprise to most people. It harms people who have fixed income {jobs, pension, savers} and beneficial for individuals who have fixed expenses {borrowers}.

Harmful consequence of unanticipated inflation

• Distorts contracts
• Alter outcomes for long term projects
• Increase uncertainty
• Depresses investment and growth

Note:

• In general, steady rates of inflation can be anticipated successfully by economic decision makers.

Unanticipated inflation in the labor market

• Unanticipated inflation in the labor market =>workers work for less wages then what they think and employers may get higher profits due to the higher prices => transfer of income from workers to employers, probably higher employment than "full employment".

Unanticipated inflation in the financial capital market

• Unanticipated inflation in the financial capital market => lender lend loan out at less interest rate that they think and borrower s gain at the expense of lenders => transfer of income from lender to borrower.