Question

Why do borrowers win and lenders lose when unexpected inflation occurs?

Answer 1

When someone lends money to other they keep the expected inflation in mind, as the inflation reduce the purchasing power of the money they keep the interest rate above the inflation so that the real rate of return is higher than the inflation, it will negate the effect of rise in the inflaiton.

But when the inflation is unexpected i.e. not covered by the interest rate it transfers the real wealth form the lender to the borrower. The lender will receive some less money in the real value or we can say that he cannot purchase the same basket of good due to increased inflation and these were not even covered by interest. So, the lenders will lose.