Why Is a 2% Inflationary Target So Important?

Author: Boychuk Mortgage Group |

  • Let’s look at a simple example:
  • A $1 cup of coffee in a 2% inflationary period, takes 36 years to double via compound interest
  • A $1 cup of coffee in a 4% inflationary period, takes 18 years to double via compound interest
  • A $1 cup of coffee in an 8% inflationary period, takes 9 years to double via compound interest
  • Inflation compounding year over year:
  • At a 2% rate of inflation, we consumers can handle that slow increase over time
  • At a higher than 2% rate of inflation, we, the consumer will see the cost of every day essentials spiral beyond our financial control
  • The longer inflation remains high, the harder it is to correct, posing greater risk to our economy over time.
  • The real concern is the worry of inflation getting out of control, however, the unfortunate biproduct has been the increases to interest rates.
  • Higher costs are especially challenging on households with FIXED incomes and is why combating inflation is so important.

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