Final answer:
If nominal wages increase by the same rate as inflation, real wages stay the same, preserving purchasing power but not increasing it. People worry about inflation as wage increases can lag, creating insecurity and potential conflicts, and infrequent minimum wage adjustments can lead to lost purchasing power.
Step-by-step explanation:
If the inflation rate is 4% this year, and nominal wages also increase by 4%, the real wages would essentially remain the same because the purchasing power of the wages has not increased. The increase in nominal wages only compensates for the higher prices due to inflation, but does not provide any real increase in income. People worry about how inflation affects incomes because even if wages and salaries rise at least as fast as inflation over time, there can be periods where wage increases lag behind inflation, causing a decrease in purchasing power. Moreover, wage adjustments due to inflation are often not immediate and can be somewhat sticky, leading to insecurity for workers and potential conflicts between employers and employees. For example, if the minimum wage is adjusted for inflation infrequently, those workers effectively lose purchasing power in the interim.