Deflation bad for savers?

Generali

To be clear.

Deflation is good for:

- Savers (as the value of your cash savings is rising)
- Owners of Gilts (as the value of the cash you will receive at maturity is rising)
- Those living on fixed incomes (eg pensioners - as the purchasing power of that income is rising)

Deflation is bad for:

- People in debt (as they have to repay the debt with money with greater value than they borrowed)
- Shareholders (as companies almost always have debt)
- People trying to sell things (as their customers believe the price will get lower if they hold off buying)

Of course, there are then secondary effects - the bad things that caused deflation could also cause you to lose your job making saving harder for example.

The above is why I think index linked Gilts are a great buy in these uncertain times. If deflation kicks in (as I think it will), the value of your holdings will rise in real terms, although not in nominal terms. If inflation happens then the 'coupon' (interest payment) will rise.

MrFonzerelli

Generali wrote: »

The above is why I think index linked Gilts are a great buy in these uncertain times. If deflation kicks in (as I think it will), the value of your holdings will rise in real terms, although not in nominal terms. If inflation happens then the 'coupon' (interest payment) will rise.

That is until it gets so bad, Gilts are no longer considered 'risk-free'.

On a very slightly more serious note. I thought the Bank of England had bought them all!?:D