The Impact of Inflation's Wealth Transfer Effect.

The formula for the lost purchasing power of demand deposits(DD) relative to nominal GDP (NGDP) is calculated as(DD/NGDP) * (p-i), where p denotes the inflation rate and irepresents the deposit rate. Recent high inflation certainly has affected consumers'pocketbooks; by one measure, it has reduced the purchasing powerof certain U.S. financial assets--demand deposits, time depositsand savings deposits--by nearly $1.8 trillion for the 12-monthperiod ending March 2022. The formula for the lost purchasing power of demanddeposits (DD) relative to nominal GDP (NGDP) is calculated as(DD/NGDP) * (p-i), where p denotes the inflation rate and irepresents the deposit rate. However, while higher inflation does erode thereal value of nominal assets, such as demand deposits, it alsolowers the real value of nominal liabilities, such as mortgages. [Extracted from the article]