Heterogeneous Impact of Inflation on Firms

Objective: The article aims to examine the relationship between inflation and the structure of the business sector, or how inflation affects different companies. Research Design & Methods: The paper is mainly theoretical, but considerations presented are illustrated by relevant empirical data. Findings: Inflation has a heterogeneous impact on companies. Because inflation does not affect all firms in the same way, it redistributes income and wealth among companies and affects the structure of prices and production. Implications / Recommendations: The presented analysis supports the arguments that money is not neutral, even in the long run. What is important is that the new structure of prices and production will be suboptimal, to the detriment of the proper functioning of the price mechanism and the productivity of the economy. It strengthens arguments against expansionary monetary policy. The findings of this study emphasise the need for further research. Contribution: This study contributes to our understanding of the nature and consequences of inflation and enriches the debate on the redistributive effects of inflation. It adds to the existing literature, which focuses on the effects of inflation on households, by presenting an analysis of the heterogeneous effects of inflation on firms.