Government and economists say, that ideal inflation is about 2%.. why is that? Why is 2% of my savings disappearing every year good? (In ideal case)
In: Economics
2% inflation is in the tolerable zone where central banks worry about both inflation and unemployment. There is a short-term trade off between inflation and unemployment. It’s not worth putting people out of work to get lower than 2% inflation.
When inflation is greater than 5%, central banks will fight inflation full stop even if it means putting large amounts of people out of work. The problem with this is that price increases become expected/scheduled rather than responses to the market.
When inflation is negative, loans become harder to pay off as salaries go down. People default on their loans, decreasing the portfolios of the people who made the loans. It’s a terrible cycle. Also, people start hoarding cash as an investment.
Cash should not be an investment. Cash is used to exchange goods and services, not to be a good itself. When inflation is 2% don’t hoard money itself. Invest it in something that you think will appreciate in value.
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