Why does inflation affect the increase of social security and other allowances?

First, it caused the social security fund itself to depreciate and formed reserve accumulation. Relevant research shows that in the absence of an index adjustment mechanism, the inflation rate of 5% can make the real monetary value of social insurance funds only equal to 70% of the initial value after 7 years. The second is to lead to an increase in social security fund expenditures. Because with inflation, people's living expenses increase, therefore, the insured who relies on social security allowance as their source of livelihood must get more security allowance if they want to maintain their basic living standard. Third, it may affect the raising of funds. Because under the condition of inflation, delaying payment means reducing the real monetary value of the paid fund. The influence of these three aspects exists at the same time, which requires the social insurance fund to have a high return on investment, otherwise it will not only fail to maintain and increase the value of the social insurance fund, but also seriously affect the realization of the social insurance system objectives.

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