Suppose Specific Automakers is considering signing a long-term contract with the union representing its workers. Specific Automakers and the union both agree that real wages should increase by 2%. Inflation is expected to be 5%, so they agree on a 7% nominal wage increase. Now, suppose inflation turns out to be lower than expected, coming in at 4%. This wouldharm the union and Specific Automakers because the real wage increase would now be . Because of uncertainty about future inflation, the union devotes a large quantity of resources to monitoring inflation indicators in order to maximize its financial position. This illustrates the fact that: Inflation obscures relative price changes Inflation harms lenders and helps borrowers Variable inflation is associated with high transaction costs