Sabtu, 29 Maret 2014

Economic Article

WHY INFLATION IS ERODING YOUR SAVINGS

                The basic principle behind inflation is that as the money supply increases, so too does the relative price of goods and services. A common sentiment for children to hold is “why can’t we all be millionaires, then there would be no poor people”, or something to that effect. The answer is inflation (Past Future  Tense). In theory we could all be millionaires (Future Continuous Tense), but this would drive up the price of consumer goods to reflect the increase in money supply, essentially balancing out society’s new found wealth. (Past Future Continuous Tense)
The above scenario is an example of hyper-inflation, where prices rise in an exceedingly rapid fashion. In reality, most modern countries with stable, or fairly stable, economies have an inflation rate in the low single digits (Past Perfect Tense ). When using New Zealand as an example, we have recorded an inflation rate of a little below three percent since the turn of the century (  Past Perfect Tense ), never veering too far from that mark in any one year. For the average citizen what this means is that as the amount of New Zealand currency increases by three percent annually, the price of goods and services follow in order to keep pace. In essence, you would have to be earning three percent or more in additional income each year in order to avoid a decrease in your buying power ( Past Future Perfect Continuous Tense).
The example of wage parity shares a common connection with how savings are affected by changes in inflation. Your savings must also increase at the same rate of inflation each year (Future Continuous Tense) in order hold their real worth. If prices are rising annually but your savings remain unchanged (Future Continuous Tense), you are able to purchase less with the same amount as you were the previous year (Past Perfect Continuous Tense). This is why keeping your savings hidden under a mattress is not the smartest investment strategy ( Past Perfect Continuous Tense), even if you ignore the security issues (Simple Future Tense). What the vast majority of us do instead is deposit our savings into the bank (Past Perfect Continuous Tense).
Banks have made for sound investments(Future Perfect Tense), seeing as the deposit rate has traditionally been above the inflation rate(Past Future Continuous Tense), at least in New Zealand. This means that your savings are growing faster than inflation(Future Continuous Tense), effectively increasing the value of your deposit within the marketplace(Present Continuous Tense). The problem is, following an increase in GST, inflation has risen above the interest rates offered by banks. It is still a far safer investment than storing cash under your mattress, but not as secure as it once was.
Modern investors need to more carefully consider their options when structuring a portfolio(Simple Future Tense). Of course the key advantage of a bank is that you don’t risk losing your investment(Future Continuous Tense), but if your value is being eroded from year to year then you have to ask yourself what the point is(Future Continuous Tense). The best thing to do is speak to an Investment Adviser, who can help sort through your options and minimise the impact of inflation upon your savings(Future Continuous Tense).