An effect of inflation is that it favors debtors at the expense of creditors.
Inflation is the persistent increase in the general price level of goods and services in an economy over time. It erodes the purchasing power of money, which means that the same amount of money can buy fewer goods and services than before. As a result, inflation affects different groups of people in different ways.
One of the effects of inflation is that it favors debtors at the expense of creditors. When there is inflation, the value of money decreases over time. This means that the value of the debt also decreases over time, making it easier for debtors to pay off their debts with money that is worth less than when they borrowed it. On the other hand, creditors are at a disadvantage because they receive back money that has less purchasing power than when they lent it out.
For example, if a person borrowed N100,000 at the start of the year with an interest rate of 10%, and there was no inflation, the borrower would have to pay back N110,000 at the end of the year. However, if there was inflation of 5% during the year, the borrower would have to pay back N105,000 in real terms. This means that the borrower is paying back less in real terms than they borrowed, while the creditor is receiving less in real terms than they lent out.
In summary, one of the effects of inflation is that it favors debtors at the expense of creditors, as the value of money decreases over time, making it easier for debtors to pay off their debts with money that is worth less than when they borrowed it, while creditors receive back money that has less purchasing power than when they lent it out.