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
It’s not directly good for you, but it’s good for the economy, and so indirectly good for you.
An economy is driven by people spending money. If people stops spending money, then the people who makes stuff stops making things and themselves stop spending money and it could begin a cycle of people not spending money and production of goods halting. While you could just say it’s supply and demand, the problem comes from the fact that there are certain goods that will always have demand no matter the supply, ie, food. If you suddenly became unable to afford food because you stopped getting paid, that’s bad.
Now obviously one person not buying things isn’t going to start this cycle, but if a whole bunch of people suddenly stops buying things, this cycle can start.
To try to make sure this cycle doesn’t start, the government keeps inflation at about 2%, the idea is that if you knew that 2% of your savings is effectively disappearing every year, you would want to spend that money before it does. 2% is determined to be an amount that encourages this whilst still being low enough where that amount “disappearing” from people’s savings doesn’t cause significant issues itself.
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