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
  • Because Inflation compounds 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 consumers will see the cost of every day essentials spiral beyond our control
  • The longer inflation remains high, the harder it is to correct and the greater risk to the economy over time.
  • Where the real concern is the thought of inflation getting out of control, the unfortunate bi product are the increase in interest rates.
  • Higher costs are especially challenging on households with FIXED incomes & is why combating inflation is so important

 

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