If you are paying a fixed rate on a mortgage, is inflation then a good thing?
In: Economics
Inflation is good for all the economy. If there is no inflation then people can just put their money under their beds and do nothing with it. Inflation forces people to invest it in some way to avoid money devaluation.
For loans, inflation reduces the real value of your loan with time. With current decades-long loans it helps to reduce the pressure of the loan on your salary.
At 3% inflation, after 10 years, your loan – even if you paid nothing back – will be reduced a 34%. With 1% inflation that is 10%.
Countries that suffer deflation have a big problem with loans, as they weight in the economy increases. Think about being paying your loan for 10 years and in real value it would be like not having paid anything at all.
Hyper-inflation is bad, that is why there are so many negative comments. But inflation is good and necessary. Deflation will destroy any economy as putting money under the bed has a positive return and zero risk.
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