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Rachel

Confusion Over Effect Of Inflation On My Depsoit

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ok, i have a decent deposit saved and won't buy until i feel house prices are more reasonable(i know i could be waiting a long time).

Anyway, i'm confused over the effect of inflation will have on my money, as i've read in other posts that it will make my money worth less.

But less in relation to what? other currencies?

if house prices were to drop considerably, my large deposit would be a good thing?

sorry if this is a confusing post, it's just that i'm confused (not great with economics)

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My understanding, which could be wrong, is that if the cost of living goes up more than the interest on your deposit adds to the capital AND house prices don't come down then that could impact on your deposit but as house prices are already dropping, it's not a problem :)

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ok, i have a decent deposit saved and won't buy until i feel house prices are more reasonable(i know i could be waiting a long time).

Anyway, i'm confused over the effect of inflation will have on my money, as i've read in other posts that it will make my money worth less.

But less in relation to what? other currencies?

if house prices were to drop considerably, my large deposit would be a good thing?

sorry if this is a confusing post, it's just that i'm confused (not great with economics)

Inflation is 2.5%

let's say your bank is paying you 5% interest, less savings tax you are getting about 4%

So your 'real' interest rates is only 1.5%. Your money is only growing 1.5% above inflation.

However, if you are concerned only with saving for a house then it is really house price inflation that you should be concerned with.

If a house where you live goes up 10% per year and you are only getting 4% on your savings after tax then your savings are being eroded by 6% in value per year (10%-4%)

However, if house price inflation is negative (let's say they go down 5% per year) and you are getting 4% on your savings then your 'real' interest rate is 9% which is very good.

Inflation is how much stuff is going up in cost each year.

if inflation is 2.5% then if you buy a load of stuff and it costs £100 this year, you will need £102.50 to buy the same amount of stuff next year. So if you put your £100 under your mattress then next year you wouldn't be able to buy the same amount of stuff, inflation has eroded the value of your money. You would still only have £100 but the stuff costs £102.50 now. If you put it in a bank, you get 4% interest so next year you have £104 - you can still buy the stuff and you've got £1.50 left over - this is the amount made by the 'real' interest rate. Your money has not been devalued, it has kept ahead of inflation.

But as I said above if you are saving for a house, then it is house price inflation figure for the area and the kind of property you want to buy that you should use for the inflation figure to work out whether your savings are keeping up with the (house price) inflation.

Edited by munimula

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it depends if you believe the government inflation figures, if you dont and you think inflation is above the interest rate then your money will have less buying power. But if you believe inflation is 2%, the money in the bank is very doing well :)

http://en.wikipedia.org/wiki/Inflation

edited : Ohh i love the inflation world on wikipedia :)

Inflation_rate_world.PNG

Edited by moosetea

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Inflation is 2.5%

let's say your bank is paying you 5% interest, less savings tax you are getting about 4%

So your 'real' interest rates is only 1.5%. Your money is only growing 1.5% above inflation.

However, if you are concerned only with saving for a house then it is really house price inflation that you should be concerned with.

Real inflation is running nearer 10% which is even outstripping current house inflation IIRC is 4-5% (though this is meaningless with recent rises of nearer 10% per year)

There is no investment that will even allow the value of your deposit to stand still - you'll have to take it on the chin like the rest of us

Personally, I'm sticking my spare worthless cash into Premium Bonds - bit like doing the lottery (except you just don't throw the lot down the toilet)

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Real inflation is running nearer 10% which is even outstripping current house inflation IIRC is 4-5% (though this is meaningless with recent rises of nearer 10% per year)

There is no investment that will even allow the value of your deposit to stand still - you'll have to take it on the chin like the rest of us

Everybody's experience of inflation is different. The average is 2.5%.

If you are a pensioner and you spend your money on energy, council tax, water rates and don't have money left over for buying consumer items your inflation is probably higher than 10%

If you are a 20-something living at home paying mum and dad £20 rent per week which doesn't go up and you spend all your money on your car, new electronic gadgets and holidays then your inflation rate is probably below 2.5%

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The average is 2.5%.

IMO your living in a dream world...

http://www.housepricecrash.co.uk/forum/ind...c=33764&hl=

I understand the [CPI] figures are out tomorrow for July. Has anyone got the list of goods and services held within the shopping basket?

And what has been taken out / added over the past few years

Taken out:

petrol

gas

Food

Council tax

beer

cigarettes

houses

Added:

LCD tv's

computer

IPODs

DVD players

Stereos

Edited by dnd

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IMO your living in a dream world...

Not at all. I totally understand what you are saying.

My personal inflation is probably considerably higher than 2.5% but as I indicated above different people experience different levels of inflation, the CPI measure using a basket of goods is an average measure of inflation. Whether this measure accurately gives an average measure of inflation is another matter.

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Guest Alright Jack

I'm with dnd on this. 2.5% is a nonsense. It's a very deliberate fraud used more and more widely across 'first world' economies as the global situation gets ever more grave.

Inflation is the increase in money supply. Rising prices are one of the obvious things that result from this. It's the same old story told time and time again from Rome to the Weimar Republic. The wolf in sheep's clothing is the method of supplying money which via debt. It's less obvious this way that banks are just creating vast sums of money out of thin air simply because people (at least for now) have conservative attitudes towards debt. It is misplaced because just as the defintion of inflation appears to have been altered, so two too has the real meaning of debt. Debt is something that has to be repayed - or is supposed to be - whereas todays cumulative debt was never meant to be settled. It can't ever be settled, in fact in order that the system remain solvent, it must continue its expansion at an ever faster pace.

If there is any material difference between the inflationary era we live in today and those periods in the past, it is that the general public, through the various credit markets, have virtual access to the printing presses.

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ok, i have a decent deposit saved and won't buy until i feel house prices are more reasonable(i know i could be waiting a long time).

Anyway, i'm confused over the effect of inflation will have on my money, as i've read in other posts that it will make my money worth less.

But less in relation to what? other currencies?

if house prices were to drop considerably, my large deposit would be a good thing?

sorry if this is a confusing post, it's just that i'm confused (not great with economics)

The Government has no intention of crashing the housing market - they'd rather let inflation continue to climb (as it has done unoticed by the public for the past number of years) - so you might see some IR rises - but the BOE will back off instantly if becomes too unpopular

To crash the housing market (and everthing else as well) it'll take a macroeconomic (world) event or the press to explain to the public how real inflation is making their everyday lives more difficult/expensive - people might then stop unconsiously borrowing to bridge the gap between their pitiful wages and rising prices...

Edited by dnd

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ok, i have a decent deposit saved and won't buy until i feel house prices are more reasonable(i know i could be waiting a long time).

Anyway, i'm confused over the effect of inflation will have on my money, as i've read in other posts that it will make my money worth less.

But less in relation to what? other currencies?

if house prices were to drop considerably, my large deposit would be a good thing?

sorry if this is a confusing post, it's just that i'm confused (not great with economics)

Specific to your query: Think of cash as a flexible and highly portable tradeable commodity. It has a value only in what you can trade it for. Inflation in this case represents the decay of your deposits purchasing power. This purchasing power might be with regard to other currencies (simply put: other tradeable commodities) or assets like housing.

Some might argue that house prices are a better indicator of true inflation. Many essentials like bills and housing have gone up by ~10% per year in price.

In response to your last point: Yes a large deposit would be a good thing as when house prices drop it comes with other conditions like recession and tight credit/lending. You will have an advantage over many others when buying.

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Nice graph munimula, it looks bad until you realise it is based on the CPI measure of inflation! So it is even worse than it looks.

I worked out my own rate of inflation for the last couple of years, based on items I actually buy, as opposed to items that are going down in price (like ipods).

I came out with a figure of 5.5%.

However, I noticed my food bills have gone down over the last two years. I put this down to economising on food items, no longer buying luxury things.

If I omit this from my calculation, I end up with an average figure of 8% YOY.

This is quite a bit more than the CPI figure of 2.5%.

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Guest mattsta1964

I'm with dnd on this. 2.5% is a nonsense. It's a very deliberate fraud used more and more widely across 'first world' economies as the global situation gets ever more grave.

Inflation is the increase in money supply. Rising prices are one of the obvious things that result from this. It's the same old story told time and time again from Rome to the Weimar Republic. The wolf in sheep's clothing is the method of supplying money which via debt. It's less obvious this way that banks are just creating vast sums of money out of thin air simply because people (at least for now) have conservative attitudes towards debt. It is misplaced because just as the defintion of inflation appears to have been altered, so two too has the real meaning of debt. Debt is something that has to be repayed - or is supposed to be - whereas todays cumulative debt was never meant to be settled. It can't ever be settled, in fact in order that the system remain solvent, it must continue its expansion at an ever faster pace.

If there is any material difference between the inflationary era we live in today and those periods in the past, it is that the general public, through the various credit markets, have virtual access to the printing presses.

Absolutely spot on

So I suppose, we will very soon reach a point where all the 1st world economies are so indebted that they wont be able to even repay the interest on what is owed. That will be the point at which the entire global economy will collapse. As the compound interest on debt is increasing exponentially...............we are very soon qoing to arrive at the end of the road. I reckon we've got 10 years max before the entire world economy disintergrates. Cheerful chap aren't I! :D

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Absolutely spot on

So I suppose, we will very soon reach a point where all the 1st world economies are so indebted that they wont be able to even repay the interest on what is owed. That will be the point at which the entire global economy will collapse. As the compound interest on debt is increasing exponentially...............we are very soon qoing to arrive at the end of the road. I reckon we've got 10 years max before the entire world economy disintergrates. Cheerful chap aren't I! :D

Nah, it'll just, painfully, cycle round and the system (the best/only one we have IMO) will continue

We can't go back to bartering - I can't face changing a pig for bag of wheat in a dirt street....

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I reckon we've got 10 years max before the entire world economy disintergrates. Cheerful chap aren't I!

Yes. The current 'world economy' is hugely corrupt and detrimental to the majority of people on the planet... a collapse will be nasty in the short term, but should return some balance to the system in the long term.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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