Is the value of my money decreasing?

Question

As inflation is increasing, money is becoming worth less right? If that's so, assuming that the interest I get each month on my bank account balance is lower than inflation, am I loosing money? Is the £10,000 in there worth less in a year?

And while we're here, why is inflation necessary in a healthy economy?

Answer 1

If interest rate is less than the inflation rate you are losing. This happens in times of high economic risk when people want to keep their assets liquid  in short term instruments.

Deflation is bad for an economy because  people can increase their wealth without investing by just sitting on their money. However inflation also messes  things up by introducing  extra risk into doing business. Most economist believe that  low inflation is better than low deflation so the fed aims a an inflation rate or 1 to 2 percent.

Answer 2

If the inflation rate exceeds the interest rate.  Then you don't loose money.  But you loose the purchasing value of your money.  Which means that you can buy less for your money than before.

If inflation was good for the economy.  Then Zimbabwe would've been doing better than any other country in the world.  Because last time I've heard, their inflation rate is 4,000,000%.

I'd say that inflation is bad for the economy, when people are aware of it.  Because people don't like to loose the pruchasing value of their money.  And to avoid such losses they squirrel away their wealth in various physical goods such as gold, commodities, and property.  Which is not good for the economy, because this money is not being put to productive use that creates employment.

But if the inflation is relatively low.  And many people don't notice the loss of their purchasing power.  Then for some time the economy can grow by stealing wealth from the savers and giving it to the spenders.

Answer 3

In many repects we are always loosing.

It is unfortunately balanced that way

A Bank is a Bank is  a  Bank......and they will

do what's necessary to make things look good

while taking with the other hand !

Without inflation i guess , peoples wages could

drop dangerousley low, as prices of everything

would drop to rediculous levels/companies would

go out the window, drop of employment places.....

Answer 4

1) Yes, the value of oney is decreasing.  This is the case for all economies that are experiencing inflation.  The only exception would be nations experiencing deflation - prices are falling.

2) Your assumption is correct, that is why investors do not place money in the bank they invest in items that change with inflation, housing/stocks.

3) Inflation is required as it shows that the economy is experiencing economic growth (increased production - shown in GDP (Gross Domestic Production).  In any economy the government attempts to have both price stability (low inflation) and economic growth.  The target is 2-3% inflation and 3-4% economic growth.  The government can use fiscal policy (changing government spending and taxation) and monetary policy (interest rates using the RBA (reserve bank of Australia) to limit or encourage spending to change inflation or growth.

This is a very good question.

Answer 5

I guess you can look at it as you are losing, but at least you aren't losing as much as you would if you wheren't getting any interest on it.