Interest on deposits and inflation. The impact of inflation on savings
Inflation and your savings. How does inflation affect deposits?
The word “inflation” is constantly heard. The media, politicians, economists and ordinary people, including grandmothers at the entrance, talk about this. Some say that inflation has grown and eaten up all savings; banks convince depositors that they can protect their money from depreciation if they open a deposit. Let's consider what inflation is, how it affects savings and what consequences it has.
What is inflation?
It represents a constant process of falling value of money. In other words, this is the depreciation of funds over time. If today, with one hundred rubles, a buyer can buy four loaves of bread, then in a year he will buy only three loaves of bread with the same hundred rubles. Thus, taking into account inflation, today's 100 rubles in a year will be equivalent to today's 85 rubles.
The inflation index is calculated based on many parameters. Experts take into account the general change in prices across the country for a large list of goods, including food, utilities, energy resources, the volume of imports and exports, etc.
Depending on the season, the index value may vary. For example, in the summer you don’t have to pay for heating; accordingly, the price of utilities falls, which entails a fall. Or, in the fall, prices for vegetables decrease due to high availability, therefore, inflation will also decrease.
As of the beginning of May 2015, the inflation rate is estimated at 16.4%. For comparison, at the beginning of April it was 16.9%. The reason for the decline was a drop in prices for vegetables and fruits by 3.7% in April. The Ministry of Economic Development believes that inflation will rise over the summer to 17.5%, and for the whole year it will be 12.4%. The Bank of Russia estimates it for 2015 at 12-14%.
Disadvantages of inflation for humans:
- The purchasing power of money decreases. If the salary is not adjusted upward, then in fact the person becomes poorer by the percentage of money depreciation.
- Money is converted into material goods. To save depreciating money, people begin to buy goods. This provokes a large demand, consequently, an increase in prices and even stronger inflationary processes.
- Loss of income on deposits. The higher the inflation rate, the more it “eats” nominal money. If the deposit rate is below the inflation level, then in fact the person will not earn anything on the deposit, and at best will maintain the same value of his savings.
Advantages of inflation for humans:
- Reducing debt to creditors. This point is probably the only positive one. Taking into account the depreciation of money, the borrower reduces his debt expressed in real money. But here we should not forget about the interest rate, which more than covers the inflation rate.
The impact of inflation on deposits.
As a rule, the growth of deposit rates lags behind the growth of inflation. Therefore, bank deposits can be used to save funds rather than to increase them. To set interest rates on deposits, banks rely on inflation rates and the refinancing rate of the Central Bank of the Russian Federation.
Economists distinguish two deposit rates:
- The nominal rate that is set at the current time and at which the deposit is placed.
- Real rate that takes inflation into account.
Let's look at an example.
The average interest on deposits as of May 2015 reaches 12%. The inflation rate is estimated at 16.9%. Taking into account the continuation of this trend until the end of the year, an investor who placed funds below 16.9% per annum will receive a real loss.
If annual inflation is at the level of 12%, then in fact the investor will only keep his savings without earning additional income.
If the inflation rate drops to 8% (as it was in 2014), the investor will receive additional profit.
What should be the conditions of the deposit in order to beat inflation and receive additional income?
This question is asked by many investors who want not only to protect their savings from depreciation, but also to increase them.
The first answer that comes to mind is to invest funds at the highest interest rate (higher than the inflation rate) and not worry about your income. Everything would be fine, but we should not forget that high returns are offered by banks that lack the liquidity of their capital or there is a threat of cash gaps. Having invested in such an organization, they may be in even greater danger.
Large banks do not offer large profits, preferring not to take risks by investing raised money in high-risk assets. Therefore, in addition to high profitability, when choosing a deposit, you need to pay attention to other conditions, for example, interest capitalization. In this case, interest will be accrued on the principal amount of the deposit and the interest accrued to it for the previous period.
Let's look at an example.
Let's calculate at what rate you need to invest funds in the amount of 100 thousand rubles in order to receive income at the end of 2015?
According to the Central Bank of the Russian Federation, the inflation rate in 2015 will be at the level of 12-14%. Let's take 14% for calculation.
Taking this into account, by the end of the year our 100 thousand rubles. will turn into 86 thousand rubles.
100000 – 14%*100000 = 86000
It turns out that in order to get at least some income, we must place money on conditions of 14%.
We will open a deposit in the Russian Standard bank “Summer Pleasure” at 15% for 1 year (interest is paid at the end of the term).
The income from the investment will be 15 thousand rubles:
100000*15%=15000
Real deposit income, taking into account inflation, will be 1 thousand rubles:
15000–14000=1000
If you choose a deposit with capitalization, the nominal rate may be lower than the inflation rate. Let's calculate it.
The effective rate is calculated using the formula:
Let us accept the condition that by the end of the year we must receive an ES of at least 14%, and we will calculate the nominal rate (NA) on a deposit with monthly capitalization.
We get that if you choose a deposit with monthly interest capitalization, you can focus on the proposed rate of 13.18% per annum. Taking into account capitalization, the effective rate will be higher than 14%. This will allow the investor to receive additional income, in addition to saving his funds from inflation.
Inflation reduces savings. Depreciation occurs simultaneously in two directions: a decrease in real monetary capital and a decrease in its profitability. The depreciation of deposits in the early stages of inflation is insignificant, but the higher the inflation, the fewer goods and services can be purchased with the money on deposit.
The profitability of savings remains as long as the interest rate on deposits is higher than the rate of price growth. Savings generate income that gradually becomes smaller. If the interest rate becomes negative, that is, less than the rate of price growth, saving loses its meaning. The higher the inflation rate, the stronger the “flight from money”, which, in turn, increases price growth.
As inflation develops, investors are forced to seek means of protecting their savings in the form of purchasing high-yield securities, foreign currency or material assets - durable consumer goods, jewelry, antiques, art, real estate, and so on. Obviously, not everyone can purchase jewelry and antiques. Most of the population is forced to reduce savings, using them to finance current consumption. The remaining funds are used to purchase foreign currency. As a result of inflation, savings are redistributed in favor of social groups that have high incomes, which grow along with rising prices. The savings themselves take a commodity-material form.
Along with the change in the structure of savings, there is a change in the structure of the loan. Inflation makes the provision of funds on credit unprofitable for the lender and profitable for the debtor. Rising prices reduce the share of long-term and then medium-term loans. The reduction in savings is accompanied by a reduction in investment. Making long-term investments becomes risky. The structure of investments is changing: they are gradually moving from the sphere of production to the sphere of trade, as well as to financial markets. A decrease in the level of investment, in turn, leads to aging equipment and rising costs, thus “fueling” inflation.
Inflation negatively affects all aspects of society and is therefore considered a social evil. Even small rates of its growth can lead to significant economic and social consequences.
The negative economic consequences of inflation include:
1. Deformation of the market pricing mechanism, which provides all economic entities with information about the amount of economic costs of production and sale of certain goods.
2. Reducing cash savings (rising prices lead to the depreciation of deposits and a decrease in the profitability of savings, which bring less and less real income. At a certain stage, the rate of price growth can overtake the interest rate and give it a negative value. In these conditions, savings lose their meaning).
3. Disruption of the functioning of the monetary system. Providing funds on credit becomes unprofitable for the creditor and beneficial for the debtor. A loan received with more valuable money is returned devalued. Under these conditions, the share of long-term and medium-term lending is decreasing. Making long-term investments becomes risky.
4. Inflation has a negative impact on investment. The reduction in savings in society and the curtailment of long-term lending leads to a reduction in capital investment. Inflation also distorts the structure of investments. There is a flow of capital from the sphere of production to the sphere of trade and the area of speculative financial transactions.
5. Impact on employment (Phillips curve - a line showing the inverse relationship between the rate of inflation and the rate of unemployment.
6. Inflation affects the state of government finances. On the one hand, by financing the budget deficit by increasing the money supply, the state imposes a specific inflation tax on the population. By using an increased money supply to pay for goods and services purchased, the government reduces the real purchasing power of the money in people's hands. This means the actual withdrawal of part of their real income in favor of the state. In addition, inflation helps the state solve the problem of internal debt, allowing it to repay its obligations with depreciated money.
On the other hand, inflation depreciates tax revenues to the budget, which are unable to actually provide for growing government spending. The government is forced to find additional means for this, including resorting to issuing money.
7. Difficulties in foreign economic relations. Inflation has a negative impact on the country's balance of payments, leads to the depreciation of the national currency, and creates problems with repaying external debt. With rising prices on the national market, there is a reduction in exports and an increase in imports. The country's balance of payments becomes negative. To cover the balance of payments deficit, the state has to use gold and foreign exchange reserves, and, when these reserves are exhausted, devalue the national currency.
8. Redistribution of income. As prices rise, the standard of living of the bulk of the population decreases as a result of a reduction in their real income. However, different social groups suffer from inflation to varying degrees. First of all, people receiving a fixed income - pensioners, students, and the unemployed - suffer from rising prices. Persons employed in the public sector suffer significant losses.
Individuals with unfixed incomes can benefit from inflation, since for this category of the population the increase in nominal income can outpace price increases. In general, high inflation reduces the real possibilities for the effective functioning of the national economy, worsens the living conditions of the majority of the country's population, aggravates property inequality between people and increases social tension in society.
The resulting inflationary phenomena have negative and social consequences.
First of all, real incomes of the population are declining, and, accordingly, the standard of living is declining, since the system of income generation is more inertial than prices. In order to compensate for the depreciation of wages, it is necessary to fight with the employer to increase them. If prices rose, say, in September, then by starting the fight for a wage increase in October, its results can be obtained, at best, in November. This means that the population actually lives for 2-3 months in conditions of declining real incomes.
Since inflation is a constant process, having started in October the struggle for a salary increase by 10% in accordance with the monthly inflation rate and receiving this increase in November, in this case we will not receive full compensation, since the increase received by this time will also depreciate. Therefore, if the state undertakes to compensate for costs, then the compensation should be advanced.
The second negative consequence for the population is the devaluation of deposits and savings. In order to protect deposits from depreciation, the interest on deposits and the inflation rate must at least be equal. Otherwise, deposits will be withdrawn from banks and demand will increase more, and the possibility of lending to production will be sharply reduced, which will slow down the possibility of increasing the supply of goods, and inflation will develop at a rapid pace. As for savings, in conditions of inflationary demand their size decreases sharply, and as a result, all income received is used to increase demand.
And the third thing consumers may feel is the loss of some of the compensatory revenue from the tax increase. This happens if the country has a progressive scale of taxation of personal income. In this case, income increases, since in the process of inflation compensation increases and, accordingly, the amount of income, therefore, from one tax group the recipient of income moves to another, where the tax rate is higher, therefore, most of the income received goes in the form of tax, and real income decreases. In order to avoid this, it is necessary to regularly review the income threshold beyond which progressive tax rates begin to apply.
Thus, inflation leads to a redistribution of national income and is, as it were, a super-tax on the population, which causes the growth rate of nominal as well as real wages to lag behind sharply rising prices for goods and services. Damage from inflation is suffered by all categories of employees, people of liberal professions, pensioners, rentiers, whose incomes either decrease or increase at a rate less than the rate of inflation.
The consequences of inflation are very ambiguous and represent complex, multidimensional phenomena. Among the consequences of inflation, socio-economic results play the most important role. In this regard, during most of the 20th century, the governments of most developed countries made such serious efforts to overcome inflationary trends.
The negative consequences of high inflation are:
· reduction in real incomes of the population;
· redistribution of income and wealth of a small segment of the population;
· increased risk for entrepreneurs;
· reduction of incentives to save money;
· increase in speculative forms of trade;
· the emergence of the effect of an inflationary spiral of wages and prices;
· escape from money; purchase of any goods;
· displacement of trade by barter;
· diversion of capital from the sphere of production and its movement into the sphere of circulation;
· hindering the possibility of regulatory influence on the economy by the state;
and so, I repeat, the main negative consequence of inflation must be recognized as the redistribution of income and wealth, which takes place in the absence of income indexation and when loans are provided without taking into account the expected level of inflation. Funds are redistributed from the private sector (firms, households) to the state. The state budget deficit, which is one of the factors of inflation, is covered through an inflation tax. It is paid by all holders of real cash balances. It is paid automatically, since money capital depreciates during inflation. The inflation tax shows the decline in the value of real cash balances.
Another channel for the redistribution of income in favor of the state arises from the monopoly right to print money. There is a difference between the amount of denominations of additional banknotes issued and the cost of printing them. It is equal to the amount of real resources that the state can receive in exchange for printed money. This difference is equal to the inflation tax when the population maintains the real value of its cash balances constant.
Individuals on fixed incomes suffer from inflation as a result of declining real incomes. Groups receiving indexed incomes are protected from inflation to the extent that the income indexation system allows them to maintain real earnings. Sellers of goods and resources that occupy a monopoly position in the market can increase their real income.
Owners of real assets (real estate, antiques, works of art, jewelry, etc.) are most protected from inflation, since the rise in prices for these goods exceeds the general inflation rate in the country.
Redistribution is also carried out between classes and segments of the population. Rapid social stratification and increasing property inequality are inevitable concomitants of inflation, which negatively affects the well-being of the population in two directions at once: through savings and current consumption.
Since most of the goods that make up the consumer basket belong to the category of goods of constant consumption, a constant increase in prices for them results in a direct deterioration in the living standards of the poorest segments of the population. At the same time, the rich, who are inclined to save the bulk of their income, lose only the saved part, while their current consumption not only does not suffer, but may even increase.
Inflation is especially dangerous for the part of the population receiving fixed incomes: students, pensioners, dependents, etc. It is for these people that the main role in assets is played by savings and cash concentrated in credit institutions. As prices increase, their real value (purchasing power) decreases.
Thus, inflation punishes people who receive relatively fixed incomes. It redistributes income, reducing it for recipients of fixed incomes and increasing it for other groups of the population.
People living on fluctuating incomes can benefit from inflation. The nominal incomes of such population groups may overtake the price level or cost of living, causing their real incomes to increase. Workers in growing industries, represented by powerful unions, can ensure their wages keep pace with or outpace inflation.
On the other hand, some wage workers also suffer from inflation. Those who work in unprofitable industries and lack the support of strong, militant unions may find themselves in a situation where the rise in the price level outpaces the rise in their cash income.
Firm managers and other profit recipients can benefit from inflation. If the prices of finished products rise faster than the prices of inputs, then the firm's cash receipts will grow at a faster rate than its costs. Therefore, some income in the form of profits will outpace the wave of inflation.
Inflation can be very damaging to savers. As prices rise, the real value, or purchasing power, of your rainy day savings will decrease.
During inflation, the real value of bank accounts, insurance policies, annuities, and other fixed-value paper assets that were once sufficient to cope with severe contingencies declines. Of course, almost all forms of savings earn interest, but nevertheless, the value of savings will fall if the rate of inflation exceeds the interest rate.
Inflation also redistributes income between debtors and creditors. In particular, unexpected inflation benefits debtors (loan recipients) at the expense of creditors (lenders). When prices rise, the value of money falls, so due to inflation, the recipient of the loan is given "expensive" money, and he pays it back with "cheap" money. The inflation of the last two decades has been a windfall for those who bought, for example, homes in the mid-1960s with fixed-rate mortgages. On the one hand, inflation has significantly eased the real burden of mortgage debt. On the other hand, the nominal value of houses increased faster than the general price level.
The impact of inflation on the country's balance of payments is also noted. Rising domestic prices lead to a reduction in exports and an increase in imports. The competitiveness of national goods is decreasing. As a result, various imbalances in the economy may arise.
Inflation also has a negative impact on producers.
First of all, an increase in demand under the influence of rising prices leads to a reduction in the portion of income going towards savings. Consequently, the basis of credit injections into production is reduced, and the rate of economic growth slows down. At the same time, scientific and technological progress begins to slow down. This is due to the fact that rising prices for equipment make it inaccessible for many entrepreneurs to replace old, low-performance equipment with new, progressive ones. It becomes more profitable to keep the old equipment that is still working, since the new one is too expensive.
And finally, along with inflation, there is a weakening of incentives to work. The most important incentive for productivity growth is wages. In conditions of inflation, it grows, but it does not grow because people began to work better or produce more products. He simply receives an additional payment for rising inflation, and the share of the inflationary part of his income is constantly growing, creating the appearance of wage growth. Under these conditions, the incentive to work better so that income increases gradually loses its significance.
Let us recall that inflation is distinguished depending on the rate of price growth: creeping (moderate), galloping and hyperinflation.
Creeping inflation is characterized by a rate of price growth of 10-20% per year.
Galloping inflation occurs when prices rise from 20 to 200% per year.
Hyperinflation is inflation with average monthly price increases of over 50% and annual increases in the four digits.
With creeping inflation, the value of money is maintained, savings bring profit (provided that interest income exceeds price increases), the risk of concluding contracts at current prices is low, and the standard of living declines slowly. The economic consequences of moderate inflation are the facts of increased economic dynamism. This is possible if there are unused factors of production and there is a guarantee of winning by stronger and more modern producers.
The negative consequences of creeping inflation include:
· manifestation of the so-called “inflation tax”;
· the effect of progressive taxation;
· depreciation of tax revenues in case of unexpected inflation;
· decrease in real incomes of the population, motives to work, depreciation of savings;
· "costs of worn out shoes", which are caused by more frequent withdrawals of money from bank accounts, which leads to additional loss of time;
· “menu costs”, characterized by updating price tags, catalogues, price lists, etc.;
· the impact of inflation on the country's balance of payments;
Galloping inflation is characterized by the fact that prices no longer objectively reflect the economic situation. This makes it difficult to plan income and expenses. Savings depreciate and become unprofitable. Banks do not risk giving fixed interest loans and long-term loans. The inflation risk of long-term investments is high. From the sphere of production, capital moves into the sphere of “short money” - the sphere of trade, speculative and financial business. At the same time, the processes of the so-called “flight from money” are activated, i.e. the desire of the population to save money at least by purchasing expensive goods, real estate, land, etc.
High inflation transforms economic growth and, at an average annual rate of more than 40%, economic growth in the country stops. The uncertainty of further development leads to a violation of forecasts for the development of economic sectors. The commodity shortage is worsening, leading to a sharp decrease in the feasibility of cash savings. This in turn disrupts the functioning of the monetary system. Barter transactions are being revived with greater intensity.
The depreciation of money within a country leads to its depreciation in relation to foreign currencies. Foreign currency, in turn, more actively displaces the national currency. The deformation of the country's monetary system continues.
Hyperinflation has a destructive effect on money circulation, as the state loses control over money emission. Employment and national output are falling sharply. Money depreciates sharply. The printing press is working at full speed, throwing out more and more piles of paper money.
Economic entities are trying to quickly get rid of rapidly depreciating money. There may be a state where the speed of money turnover is many times less than the speed of getting rid of rapidly depreciating money. This leads to the fact that the rate of price growth can sharply outpace the rate of growth in the amount of money in circulation.
Liberation from paper money is becoming global. Their place is taken by various money surrogates: barter, coupons, local money, wages in kind; circulation of (unofficially) foreign currency is increasing.
Economic ties fall apart due to violation of payment for agreements and contracts; the decline in production is worsening. The supply of necessary goods is sharply decreasing.
Only speculative business that provides resale and does not increase the total supply feels at ease. As a result, capital flees the country.
The entire monetary system is upset. It paralyzes the country's economy and leads to a “stagflation crisis,” which consists of a sharp inflationary rise in prices accompanied by a sharp reduction in production.
All these processes lead to the impoverishment of the masses, to increased social tension, to various kinds of social explosions of discontent and, ultimately, to a change of government and president (head of state).
Thus, negative diverse socio-economic consequences play a serious role in the economies of countries and the world economy as a whole, as well as in the life of society. This forces governments of different countries to pursue certain economic policies aimed at combating inflation. The fight against inflation and the development of special anti-inflationary policies are a necessary element of stabilizing the economy.
The consequences of inflation cannot be assessed unambiguously. The scientific approach to the problem of inflation differs from the everyday mythologized one by a sober assessment of the danger of inflation getting out of control and the development of recommendations for its regulation, taking into account the historical and state characteristics of the functioning of the national economy.
The negative consequences of inflation are well known. Less is aware that it can contribute to economic growth. This instrument can be used by the state for the benefit of society. Contributing to an increase in prices and profit rates, inflation initially acts as a factor in reviving the market situation, increasing prices and profit rates, and as it deepens, it increases socio-economic instability:
- - diverts capital from the sphere of production to the sphere of circulation, where they turn around faster and bring huge profits;
- - leads to disruption of trade turnover due to violation of the law of monetary circulation;
- - leads to a deformation of consumer demand, to a flight from money to goods (regardless of the real need for them);
- - distorts the normal structure of the relationship between supply and demand;
- - enhances speculative trading;
- - negatively affects credit and the credit system;
- - causes disorder of the monetary system. The depreciation of money undermines the incentive to save money.
Inflation leads to a redistribution of national income and is, as it were, a super-tax on the population, which causes the growth rate of nominal incomes, as well as real wages, to lag behind sharply rising prices for goods and services. Damage from inflation is suffered by all categories of employees, people in liberal professions, and pensioners.
Negative phenomena of inflation. Inflation has a negative impact on the economy as a whole. First of all, the population is under attack, real incomes are declining, and, accordingly, the standard of living is declining. Inflation is a constant process; if indexation of the population’s income occurs once a quarter, i.e. 4 times a year, then the population does not receive full indexation, since the resulting increase has already depreciated by the time of indexation. To maintain real incomes of the population, their indexation must be done ahead of inflation. Inflation leads to the depreciation of household deposits. In order to protect deposits from depreciation, the interest on deposits must be equal to the inflation rate. If money begins to depreciate, the population withdraws it from banks and increases the demand for certain goods. As inflation in Russia has shown, money is spent on durable goods. The outflow of money from banks makes it impossible to finance production, which slows down the ability to increase supply, the amount of money in circulation increases, and the rate of inflation accelerates. During inflation, consumers may experience a loss of offsetting income from tax increases. As a rule, this phenomenon occurs in countries where a progressive tax scale operates. In the process of inflation, due to compensation, the amount of income increases, the taxpayer falls into another tax group with a higher income, therefore, tax deductions increase. Inflation has an extremely negative impact on the activities of producers, as it depreciates working capital, which leads to a reduction in production volume. In addition, the population directs most of their savings to consumption, which reduces the saved part, and, consequently, the possibility of lending. Inflation has a negative impact on the financing of scientific and technological progress. In conditions of depreciation of money, the price of new, more modern equipment increases, so that many enterprises become unable to update fixed assets, and they continue to work on old, morally and physically obsolete equipment. inflation price profit income
Inflation kills incentives to work. The main incentive for labor is the growth of wages. In conditions of inflation, it begins to grow quite quickly, but not due to the quality and quantity of labor, but due to indexation. Thus, the appearance of wage growth is created, and incentives to work are reduced. One of the negative aspects of inflation is the redistribution of income and wealth. Rising prices lead to the impoverishment of the bulk of the population and the enrichment of small groups of people.
First, let us briefly list the main consequences of inflation:
- -- redistribution of income and wealth;
- -- price lag of state-owned enterprises from market prices;
- -- hidden state confiscation of funds through taxes;
- -- accelerated materialization of funds;
- -- instability of economic information;
- -- fall in real interest;
- -- inverse proportionality between the inflation rate and the unemployment rate.
Let's look at each of the consequences in more detail. The first of these is the redistribution of income and wealth. Suppose that a certain Mr. A took a loan from Mr. B for 5 months and during these five months inflation depreciated the ruble by 2 times. This means that after the due date, A will formally return to B, at par, the entire loan amount, but in reality - only 50%. The most offensive thing is that it is impossible to completely get rid of such a negative effect due to the unpredictability and imbalance of inflation. With inflation, therefore, it is unprofitable to lend for a long time, not only at a fixed rate, but often even at an increasing rate. If you lend at too high an increase in interest rate, then it is unlikely that anyone will take such loans for the same reason - the unpredictability of inflation. It is clear that the more unexpectedly, quickly, and unbalanced prices rise in relation to each other, the better for some and worse for others. For example, if a collective agreement has already been concluded for 5 years in advance and, moreover, without due consideration of the possibility of a sharp rise in prices (and this happens), then workers may lose if prices suddenly increase sharply, unexpectedly and unbalancedly. The entrepreneur will also suffer if, in turn, the prices for his goods rise less than the prices of others, that is, unbalanced. Another entrepreneur will win, provided that his prices have risen relatively faster, etc.
The second consequence of inflation is the lag of prices of state-owned enterprises from market prices. In the public (regulated) sector of the market economy, prices for production costs and goods are revised less frequently and for longer than in the private sector. In conditions of inflation, state-owned enterprises are forced to justify each increase in their prices and obtain permission from all higher-level organizations. It's long and ineffective. In conditions of monthly sharp, unexpected and spasmodic growth of inflation, such a mechanism, even technically difficult, is feasible. As a result, the imbalance between the private and public sectors increases, and the state loses its economic potential to influence the market. This effect is especially dangerous.
Practical advice for enterprises is to isolate small and medium-sized enterprises from the structure, since they are free to independently implement a pricing strategy.
The third consequence of unbalanced, even expected, inflation is reflected through the tax system. In such a situation, progressive taxation, as inflation grows, automatically increasingly classifies various social groups and types of businesses as increasingly wealthy or profitable, without discerning whether income has increased in reality or only nominally. This allows the government to collect an increasing amount of taxes even without passing new tax laws and rates. The attitude of business and the population towards the government is naturally deteriorating. Another consequence of unbalanced inflation is that the population and corporations seek to materialize their rapidly depreciating cash reserves. Firms are developing plans to intensify the use of cash resources. The negative here is that it stimulates a poorly thought-out, hasty and excessive rate of accumulation of material reserves for future use. Another consequence of inflation is instability and insufficient economic information, which interfere with the preparation of business plans. Prices are the main indicator of a market economy. Pricing information is essential for business. During inflation, prices constantly change; sellers and buyers of goods increasingly make mistakes in choosing the optimal price. Confidence in future incomes is falling, the population is losing economic incentives, and business activity is declining.
The next consequence of inflation is that the real money interest rate decreases by the annual percentage increase in inflation.
And in conclusion, we especially note that rising inflation is almost always combined with high, albeit underemployment, and a large volume of national production. Conversely, a decrease in inflation coincides with a decline in production and an increase in unemployment.
The economic and social consequences of inflation are as follows:
- 1. Inflation affects efficiency at the microeconomic level. The higher the inflation, the more relative prices are disrupted, and the weaker their connection with costs. In Russia, until the end of 1993, livestock was fed with bread, since the prices for it were significantly lower than costs, which resulted in an inefficient distribution of society's limited resources.
- 2. Inflation makes it difficult to implement macroeconomic policy due to imbalances between sectors of the economy, a drop in production and a decrease in incentives to work.
- 3. Inflation causes a “flight” from money to goods, turning this process into an avalanche, aggravates the commodity shortage, and revives barter.
- 4. With high inflation, owners of factors of production suffer huge losses, since in the short term the prices of factors of production are fixed, and the prices of final goods and services grow very quickly. As a result, there is a sharp decline in the real income of owners of production factors.
- 5. Inflation has a negative impact on the fiscal system due to the Tanzi-Oliver effect (Latin American economists who first paid attention to it). Its essence is that inflation depreciates tax revenues, which are accrued, for example, in the third quarter, and paid in the fourth quarter of the year, when their real value has already fallen.
- 6. Inflation is destructive to accumulated wealth, especially in its most liquid forms. This applies to the savings of the population, and to banks, and to institutions providing credit.
- 7. The most important social consequence of inflation is the redistribution of national income, a decrease in the living standards of the population, since both nominal and real wages lag behind sharply rising prices, even with income indexation.
- 8. Internationalization of production facilitates the “transfer” of inflation from country to country, complicating international currency credit relations.
- 9. Speaking about the redistribution of income, we must keep in mind that due to inflation, the entire society suffers losses, and this happens to an unequal extent. During inflation, it is beneficial to live in debt. Therefore, creditors lose to a much greater extent than debtors. The biggest gainer from inflation is the government; it is the largest debtor in the country, and inflation depreciates the value of debts. Those who can dramatically increase their income also lose to a lesser extent. Pensioners, disabled citizens and public sector employees do not have this opportunity, so they bear the brunt of inflation. There is also an age factor here. Among those receiving loans, the absolute majority are people under 45 years of age, therefore, through the use of loans, they actually redistribute in their favor the wealth that the older generation accumulated in the pre-inflationary period.
An attempt to bring down high inflation leads to a decrease in the purchasing power of money, disorganization of money circulation and a reduction in production.
But even with moderate inflation, the population suffers some losses represented by the costs of inflationary development:
- 1. Depreciation of money. This makes it difficult to perform the functions of a measure of value, and pricing becomes unstable. The process of destabilization is growing in society.
- 2. Inflation tax - an increase in prices for society, resulting from reductions in income. Constant prices reduce real income when tax revenue rises.
- 3. Net loss of efficiency. Banking capitals are adjusting their income, leading to an increase in the level of production due to direct increases in prices for resources and due to higher credit prices.
- 4. The population suffers losses when paying taxes. Nominal income may increase during indexation, which will lead to a new level of tax rates.
The state incurs losses due to long-term delays in tax collection, since the low purchasing power of money can depreciate the value of the collected tax.
5. Less significant losses are the costs of “trampled shoes” and “menu costs”.
The cost of “trampled shoes” is a decrease in money (cash) in the hands of society due to a fall in real income.
“Menu costs” is the need to change price tags more often, which is expensive for some companies (for example, restaurants, cafes, etc.).
6. Reducing fixed income, enriching those businesses whose nominal income is growing faster compared to the average price level.
The calculator shows interest on deposits and inflation. A clear example of how profitable it is to invest money in a bank.
Insurance of bank deposits in Russia: compensation for deposits in 2012, for amounts not exceeding 700,000 rubles - 100%.
Sberbank intends to increase the volume of deposits by 25% in 2012.
The calculator calculates deposits for a period of 30 years and shows the amount for each year.
Data entry (everything is free!):
Deposit calculation
No. month/year | Total amount | Interest on deposit | Inflation from the amount | Total amount (adjusted for inflation)* |
---|---|---|---|---|
1 month / 1 year | 10075.00 | 75.00 | 83.96 | 9991.04 |
2 months / 1 year | 10150.56 | 75.56 | 84.59 | 9982.71 |
3 months / 1 year | 10226.69 | 76.13 | 85.22 | 9975.02 |
4 months / 1 year | 10303.39 | 76.70 | 85.86 | 9967.96 |
5 months / 1 year | 10380.67 | 77.28 | 86.51 | 9961.53 |
6 months / 1 year | 10458.53 | 77.86 | 87.15 | 9955.72 |
7 months / 1 year | 10536.97 | 78.44 | 87.81 | 9950.54 |
8 months / 1 year | 10616.00 | 79.03 | 88.47 | 9945.99 |
9 months / 1 year | 10695.62 | 79.62 | 89.13 | 9942.06 |
10 months / 1 year | 10775.84 | 80.22 | 89.80 | 9938.76 |
11 months / 1 year | 10856.66 | 80.82 | 90.47 | 9936.08 |
12 months / 1 year | 10938.08 | 81.42 | 91.15 | 9934.03 |
13 months / 2 years | 11020.12 | 82.04 | 91.83 | 9932.60 |
14 months / 2 years | 11102.77 | 82.65 | 92.52 | 9931.79 |
15 months / 2 years | 11186.04 | 83.27 | 93.22 | 9931.60 |
16 months / 2 years | 11269.94 | 83.90 | 93.92 | 9932.03 |
17 months / 2 years | 11354.46 | 84.52 | 94.62 | 9933.08 |
18 months / 2 years | 11439.62 | 85.16 | 95.33 | 9934.75 |
19 months / 2 years | 11525.42 | 85.80 | 96.05 | 9937.04 |
20 months / 2 years | 11611.86 | 86.44 | 96.77 | 9939.95 |
21 months / 2 years | 11698.95 | 87.09 | 97.49 | 9943.48 |
22 months / 2 years | 11786.69 | 87.74 | 98.22 | 9947.63 |
23 months / 2 years | 11875.09 | 88.40 | 98.96 | 9952.40 |
24 months / 2 years | 11964.15 | 89.06 | 99.70 | 9957.78 |
25 months / 3 years | 12053.88 | 89.73 | 100.45 | 9963.78 |
26 months / 3 years | 12144.28 | 90.40 | 101.20 | 9970.40 |
27 months / 3 years | 12235.36 | 91.08 | 101.96 | 9977.64 |
28 months / 3 years | 12327.13 | 91.77 | 102.73 | 9985.49 |
29 months / 3 years | 12419.58 | 92.45 | 103.50 | 9993.96 |
30 months / 3 years | 12512.73 | 93.15 | 104.27 | 10003.05 |
31 months / 3 years | 12606.58 | 93.85 | 105.05 | 10012.75 |
32 months / 3 years | 12701.13 | 94.55 | 105.84 | 10023.07 |
33 months / 3 years | 12796.39 | 95.26 | 106.64 | 10034.01 |
34 months / 3 years | 12892.36 | 95.97 | 107.44 | 10045.57 |
35 months / 3 years | 12989.05 | 96.69 | 108.24 | 10057.74 |
36 months / 3 years | 13086.47 | 97.42 | 109.05 | 10070.53 |
4 years | 14264.25 | 1177.78 | 1426.43 | 10123.48 |
5 years | 15548.03 | 1283.78 | 1554.80 | 10266.54 |
6 years | 16947.35 | 1399.32 | 1694.74 | 10499.28 |
7 years | 18472.61 | 1525.26 | 1847.26 | 10822.09 |
8 years | 20135.14 | 1662.53 | 2013.51 | 11236.16 |
9 years | 21947.30 | 1812.16 | 2194.73 | 11743.49 |
10 g. | 23922.56 | 1975.26 | 2392.26 | 12346.87 |
11 | 26075.59 | 2153.03 | 2607.56 | 13049.91 |
12 | 28422.39 | 2346.80 | 2842.24 | 13857.04 |
13 | 30980.41 | 2558.02 | 3098.04 | 14773.55 |
14 | 33768.65 | 2788.24 | 3376.86 | 15805.61 |
15 | 36807.83 | 3039.18 | 3680.78 | 16960.31 |
16 | 40120.53 | 3312.70 | 4012.05 | 18245.71 |
17 | 43731.38 | 3610.85 | 4373.14 | 19670.90 |
18 | 47667.20 | 3935.82 | 4766.72 | 21246.05 |
19 | 51957.25 | 4290.05 | 5195.72 | 22982.49 |
20 | 56633.40 | 4676.15 | 5663.34 | 24892.78 |
21 | 61730.41 | 5097.01 | 6173.04 | 26990.81 |
22 | 67286.15 | 5555.74 | 6728.61 | 29291.89 |
23 | 73341.90 | 6055.75 | 7334.19 | 31812.88 |
24 | 79942.67 | 6600.77 | 7994.27 | 34572.29 |
25 | 87137.51 | 7194.84 | 8713.75 | 37590.42 |
26 | 94979.89 | 7842.38 | 9497.99 | 40889.52 |
27 | 103528.08 | 8548.19 | 10352.81 | 44493.94 |
28 | 112845.61 | 9317.53 | 11284.56 | 48430.32 |
29 | 123001.71 | 10156.10 | 12300.17 | 52727.78 |
30 g. | 134071.86 | 11070.15 | 13407.19 | 57418.14 |
* - the total amount and losses from inflation are given for clarity; banks do not calculate them.
Above is an example of a standard deposit in Sberbank, VTB, Home Credit, Europe Bank, Finance Bank, Alfa Bank and other banks.
What is a contribution?Deposit - Money deposited (at interest) in the bank.
What is inflation?Inflation is the depreciation of money, leading to an increase in the cost of goods. Inflation no higher than 10% and no lower than 3% is considered normal for the economy. Euro and dollar inflation is about 5% per year, the ruble falls by 10% every year. This is why interest rates on bank deposits in the euro and dollar are lower than in the ruble.
What is a profitable deposit?A profitable deposit is a deposit with an interest rate that exceeds inflation. In the conditions of Russian reality, profitable bank deposits do not exist. Inflation in Russia is above 10% per year, and the ruble interest rate is no higher than 9% per annum. The situation with dollars and euros is better, but the rate is two times lower. In addition, since 2010 the dollar exchange rate has remained unchanged.
Why do you need a bank deposit?It is impossible to get rich by investing! Money constantly depreciates (inflation). You can only save what you already have. Large capitals need to be invested in real estate and securities.
What should I sign?Bank deposit agreement: Under the agreement, the bank takes the amount and undertakes to return the deposit amount and pay interest on it under the conditions and in the manner prescribed by the agreement.
Do we insure?Deposit Insurance Agency: State Corporation "Deposit Insurance Agency" in Moscow. A special state non-profit organization.
Show/hide: Terms used in the deposit agreementBank acceptance –performance by the Bank of actions (in accordance with clause 438 of the Civil Code of the Russian Federation) to fulfill the conditions of the Depositor's Offer: opening a Deposit account and crediting the funds of the Depositor to the Deposit on the date the Bank receives the Depositor's Offer.
Authentication- the procedure for confirmation by the bearer of the Identifier that the Identifier really belongs to the bearer.
Bank– custodian of the deposit.
Bank card – any payment card issued by the Bank (including after the conclusion of the General Agreement), in accordance with the rules of the payment system, which is an instrument of non-cash payments and intended for the Holder to carry out transactions on the Account, settlements using which are carried out in accordance with the current legislation of the Russian Federation.
ATM– an electronic software and hardware complex designed for issuing and accepting cash using a Bank Card, transmitting orders to the Bank to transfer funds from the Account, concluding an Agreement, as well as for drawing up documents on transactions using a Bank Card and providing information on the Account and Cheka.
Contribution- funds in the currency of the Russian Federation or foreign currency placed by the Depositor for the purpose of storing and generating income. Income on the Deposit is paid in cash in the form of interest.
Investor– an individual (resident of the Russian Federation) placing funds in a Deposit with the Bank.
General agreement on the procedure for placing bank deposits through ATMs (hereinafter referred to as the General Agreement) is an agreement between the Bank and the Depositor, concluded by the Depositor joining these Rules by completing and signing an Application, containing a number of conditions of the Bank Deposit Agreement, incl. essential, and determining the procedure for concluding bank deposit agreements.
Deposit return day – the date on which the Bank is obliged to return the placed Deposit to the Depositor in connection with the expiration of the Deposit Placement Period.
Deposit account- an account for recording funds placed in the Bank on Deposit in order to receive income in the form of interest accrued on the amount of placement of funds.
Remote information service - providing the Depositor with information on his accounts opened with the Bank, transactions on these accounts, as well as other transactions carried out by the Depositor with the Bank, through Interactive access channels in the manner and on the terms provided for by these Rules.
Bank deposit agreement (hereinafter referred to as the Agreement) – an agreement between the Bank and the Depositor, concluded in accordance with the terms of the General Agreement by acceptance by the Bank of the Offer sent by the Depositor through an ATM, drawn up in electronic form and signed with an analogue of a handwritten signature (PIN code), according to which the Bank, which accepted the amount of money received from the Depositor (Deposit ), undertakes to return the Deposit amount and pay interest on it under the conditions and in the manner prescribed Agreement.
Remote banking agreement – an agreement concluded between the Depositor and the Bank, which determines the procedure for transmitting Orders to the Bank to carry out transactions on accounts using remote banking systems.
Statement -Application for adherence to the Rules for placing bank deposits by individuals
Identifier– for Interactive access channels within the framework of Remote Information Services - Client Number and/or Alias that uniquely distinguishes (identifies) the Depositor among
other Bank Clients, for other Access Channels - other additional information that allows you to uniquely determine (identify) the Depositor’s identity.
Identification– determination by the Bank of the Depositor’s identity based on the Identifier presented by him.
Interactive access channel (self-service channel) – an access channel, information services through which are carried out using specialized technical means (telephone with the ability to dial tone, Internet, etc.) without the participation of Bank employees through the PSB-Retail System.
Access channel –a channel of interaction with the Bank, providing the Depositor with the opportunity, through public telecommunication channels, independently or with the participation of a Bank employee, to receive information on his accounts opened with the Bank, transactions on these accounts, as well as other transactions made by the Depositor with the Bank. Access Channels, in particular, include – Contact Center, the telephone number of which is listed on the Bank’s website, Interactive Access Channels.
Minimum deposit amount – the minimum amount of funds (Deposit) that must be in the Deposit Account during the Deposit Period.
Client's number -a natural number (a combination of digits) used as an Identifier.
Offer– the Depositor’s proposal to conclude an Agreement by performing the operation of opening a deposit through an ATM using a Bank card and PIN code.
Password– a sequence of characters known only to the Depositor, used for Authentication of the Depositor when servicing via Interactive access channels. The password can be used multiple times.
Initial deposit amount – the amount of the Deposit placed by the Depositor upon conclusion of the Agreement. The Initial Deposit Amount is equal to or greater than the Minimum Deposit Amount.
Pin – a means of identifying a Bank card, an analogue of the Depositor’s handwritten signature.
Order– the Depositor’s order to carry out a transaction on the Deposit Account, confirmed by a document on transactions using the Deposit Account or executed in the manner established by the Remote Banking Agreement.
Representative– an individual (resident or non-resident of the Russian Federation) to whom the Depositor has granted the right to enter into a General Agreement and/or dispose of the Deposit (perform transactions on the Deposit Account) on the basis of a power of attorney within the powers specified in the power of attorney. The power of attorney must be drawn up and submitted to the Bank in accordance with the requirements of the current legislation of the Russian Federation and these Rules.
Nickname– a sequence of symbols (a combination of numbers/letters/words) that the Depositor has the right to use as an Identifier along with the Client Number.
PSB-Retail system – software and hardware complex (corporate automated banking system, which is a type of electronic document flow system “client-bank”), providing remote information services within the framework of these Rules, as well as the formation, transmission, including through Access Channels, registration of Depositor’s Orders on the basis Remote banking agreements.
Deposit term – the period for which the Investor placed funds in the deposit. The term for placing the Deposit is determined by the Depositor in the Offer in accordance with the Conditions for attracting deposits. The term for placing a deposit is calculated in calendar days and is indicated in the Offer and Receipt.
Sides –Bank and Depositor when mentioned together.
Check– a bank account intended to reflect transactions using a Bank Card (Bank Card details) in accordance with the legislation of the Russian Federation and the agreement on the issue and maintenance of a Bank Card.
Agreement conditions – an information document containing the main terms of the Agreement concluded by the Depositor using the ATM, issued to the Depositor upon his request at the Bank in the form of Appendix No. 3 to these Rules.
Conditions for attracting deposits – conditions approved by the Bank under which the Bank attracts funds from individuals for deposits through ATMs. The Depositor makes the Offer in accordance with the Conditions for attracting deposits in force on the date of the Offer. The conditions for attracting deposits contain (including, but not limited to): the name of the Agreement, the size of the Deposit amount, the Minimum amount(s) of the deposit, the list of currencies in which the Deposits are placed, interest rates on Deposits, the terms for placing deposits, the presence or absence of the opportunity performing outgoing or incoming transactions
Check– confirmation of the Depositor making a Deposit under the terms of the Depositor’s Offer and the General Agreement in accordance with the Conditions for attracting deposits. The check is issued by the ATM on paper and contains an indication of the terms of the Depositor's Offer and the Agreement.