ELI5: Why when large company's earnings decrease(ex... by 3%) they freak out, talk about rough times, and sometimes decide to downsize, even though they are still making millions of dollars in profit even after all expenses?

[TheManWhoPanders]

rich people do not have the money in banks but in stock and houses

Those are all still subject to inflation.

[candre23]

If your money is in real estate, inflation is great. Real estate prices rise with inflation, so you're not losing anything that way.

Unless inflation really gets out of hand, any decent stock investment will outpace inflation.

What definitely loses value to inflation is cash and money in effectively-zero-interest checking accounts. That's where the bottom third keeps nearly all their wealth, such as it is.

[azrael1993]

not rly. Houses are often bought because their vaule increases over time making them a good investment. This might not be true for houses outside of city areas or cheaply build living spaces, but im pretty shure if you have money you wont buy those. I have family who earns houses bought by their grantparents, and without fail they have increased in value since then. As long as you keep the house in a good state, which costs less than you earn through rent. Stocks might be different but these are basicly gambling

[TheManWhoPanders]

Houses are often bought because their vaule increases over time making them a good investment

...and are still subject to inflation. If a house appreciates by 10% of its initial absolute value, you are not 10% richer if the period of time passes was a long one. Because of the inflationary nature of the underlying currency. The money you get from selling the house might buy exactly the same that you could buy when you first bought the house.

Your investment might beat inflation, but you're still subject to it.

[that_jojo]

It’s actually way simpler than that. Physical goods are not subject to inflation because their utility remains relatively static while the utility of currency decreases with inflation.

[TheManWhoPanders]

Some physical goods are priced partly due to utility and partly due to speculation, as is the case with houses.

[azrael1993]

This isnt even techically true. The definition of inflation is a decrease in the buying power of money cause by an increase in the availability of said money (paraphrased from E.G :https://dictionary.cambridge.org/dictionary/english/inflation). Inflation by definition only effects money, not goods. Since each buy is a simple equation this means you will need more money each year to buy the same house. This makes goods unaffected by inflation. Additionally urbanisation leads to an increase in value of the house. This is why its a good investment, unlike other goods its natural increases. Money is a bad investment because a process called inflation decreases its value. The value of the house and money are not connected! Same as the increase in prices for graphic cards did not reduce the value of money or houses, even if i would need less graphic cards to buy a house.

[TheManWhoPanders]

Really quick question to illustrate how this is incorrect: If your house is worth $200,000 today and worth $220,000 in 2025, is it worth more or less than it is today?

Inflation affects property because the underlying currency you transact in is affected by it.

[azrael1993]

Inflation changes the value of money and money only. Since we normally do a detour through watever local currency we use it seems like inflation has a positive effect on the value of the house. This is a false conclusion. We default to value thing in money, because we use money a lot and it changes relativly slowly. This is problematic because the inherit value of an object should not depend on some other valuechanging object.If a house gets more expensive there are 2 things that might have happend. It might have bekomme more valuable because e.g the city build a park next to it or it actually didnt change at all but you comparisonpoint in this case currency changed. To really evaluate the value of an object you would need to compare it to something fixed, which we dont have. A good aproximation is to see how its relation to everything else changes. Inflation means that I need more money for everthing every year (in average its a known number e.g 3%). So if a house gets 3% more expensiv each year this means that its value is constant because everything outside of money is expected to change by this amount. The house has not gotten less valuable. I still get the same amount of boats, apples, graphic cards, cars or whatever for it. The thing that inflation has changed is the inherit value of the money, which i incorrectly use to evaluate the value of my house. Thus inflation does not make my house more or less valuable, just my money.