Inflation
A practical explanation of Inflation, including what it means, how it is used, and why it matters in real savings decisions.
Definition
Refers to the economic phenomenon in which the purchasing power of money decreases, resulting in a sustained and general increase in the level of prices. In savings and finance, inflation is the “invisible killer” of asset value.
Expert Financial Advice
“If your deposit annualized interest rate is lower than the CPI (inflation rate), your assets are shrinking in real purchasing power.”
? Why Should You Understand Inflation？
It is not enough to look at the safety of the principal. If the deposit interest rate is lower than inflation for a long time, your money will not lose the nominal amount, but the actual purchasing power will continue to shrink.
Key Points for Understanding This Term
- The higher the inflation, the more pronounced the true loss of low interest rate current.
- Anti-inflation does not equate to aggressive investment, and you can start by increasing the yield on time deposits.
- When comparing returns, it is best to look at both nominal and real interest rates.
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