Is inflation a good thing?

carryoncamping

Inflation is generally seen as a bad thing (I don't agree). But I once heard someone say about the 1970s that you'd 'take out a Mortgage in pounds and payback in pennies'

Meaning, anyone who owned a house through the 70s saw wage and prices inflate by around a factor of ten. Even if they'd taken out the equivalent of a 400k mortgage for a three-bedroom semi today, it would have been the equivalent of a 40k mortgage by the end of the decade!

In short, they got their debts inflated away. In today's world I have the equivalent of a mortgage 'millstone' round my neck for 25 years.

The only downside I see is relatively high repayments for the first few years but then inflation starts to work for you in diminishing your debt.

ManAtHome

Yes, that's why some of us are a bit surprised at the current boom in a low inflation environment. All very well that 'affordability' is easier with low interest rates, but it doesn't go down much when salaries are only going up 1-2% (or less) in real terms. Low inflation means you're stuck with your current debts for much longer.

Of course the other bit is that higher interest rates tend to limit your maximum debt, then the higher salary increases erode it faster... Inflation can be good (but could be a disaster if it kicked in now).

ariba10

Inflation is not too bad if you have nothing but if you have any cash savings it is not so good.

ManAtHome

Not really, interest rates tend to float above inflation. The real problem is if you're on a fixed income (eg fixed annuity).

ariba10

The interest rates keep up but it plays pop with the capital sum.

ManAtHome

Dunno - big problem is that we seem to be in micky mouse inflation-land these days - the 3% (ish) RPI is averaged out from 6% essentials and -3% for non-essentials. The allegedly 'neutral' interest rates are around 1.5% over 'inflation' which should be enough - maybe we need trade talks with China to break down to get BoE rates back to 6% or so...