New Inflation Warning From The IMF

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There is a certain inevitability about inflation. Its effects are unavoidable even if they go largely unnoticed until you suddenly realise how expensive everything is and check your bank account.

This latest warning from the IMF on inflation has less to do with inflation and more to do with what has been referred to as deflation.

Deflation is of course the opposite of inflation, yet its effects are just as destructive to our finances and savings in particular.

Of course one of the good things about deflation is that the cost of things you buy in the shops will have stopped rising. So you get to keep more of your cash. The downside is any cash you hold in savings accounts will probably cease to generate any meaningful return in interest.

This is because interest rates are more often than not influenced by inflation. If inflation is high, interest rates will be hiked to try and control it, if the opposite is the case interest rates will be cut. A low interest rate environment is what we now find ourselves in.

At times there is even the threat of negative interest rates as central banks try to stimulate growth in economies.
As the world appears to be moving into an increasingly protectionist era, the IMF is right to warn banks about their failure to prevent deflation.

In the meantime savings interest rates will continue to be poor leaving property as one of the few investments to generate consistently high returns.