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Why does inflation encourage businesses and households to hold physical assets like homes, buildings, and equipment?

Why does inflation encourage businesses and households to hold physical assets like homes, buildings, and equipment?

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Answer #1
  • Inflation refers to the sustained rise in price level. Sustained rise in price leads to fall in value of money. Hence, keeping money in hand would not be prudent decision.
  • It is advised that one should invest in tangible assets such as homes, building and equipments to hedge inflation.
  • Rise in inflation also cause rise in the prices of these buildings and homes. Hence, investors do not suffer the fall in purchasing power. If investors do not invest in physical assets, then value of money goes down.
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