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Why do I lose money every year and what is annual inflation anyway?

What exactly is the inflation? Can I lose money as a result?

Inflation is the evolution of prices. If the prices of goods and services rise permanently, one speaks of persistent inflation. And yes, you lose money every year as a result.

You can feel that very quickly in your own wallet. If, for example, you have to spend more money on bulk shopping in the supermarket than you did a year ago. Or you have to pay 80 € instead of 75 € per hour at your garage. Many people know this with extremely fluctuating consumer goods such as gasoline, milk or coffee. If this increases permanently, then one speaks of a annual Inflation in percent. I have summarized the annual inflation on average over 20 years.

Period: 2000 to 2020 (20 years)

Inflation has moved between 0.3% and 2.6% per year in the 20 years.

This means that every year you lose money if you want to save it.
I'll show you this using an example:

If you have saved approx. € 100,000.00 in your bank account within 20 years, then your € 100,000.00 would only be worth 71,428.57 €. So you would have approx. € 28,571.43 lost!

How does inflation arise in the first place?

Inflation arises from rising consumer prices. This gap is widened by constant wages and salaries and between the already mentioned price increases for food, services and other services.

Large companies can control inflation themselves to a small extent if, for example, several supermarket chains set their prices in all price segments increase. This alone creates a small annual inflation that we have to take into account.

Do I lose money if I have it in my bank account?

The simplest answer is yes. If I have my money in my bank account or savings account to save for a car, a house or vacation, then unfortunately I lose about 2% every year by the annual inflation rate . I will show you the percentage savings loss for each year if, for example, you have saved "100,000.00 €" in 20 years:

With that you unfortunately lost 32,702.87 €. Quite a large sum, right? If you don't act now, inflation will eat up your laborious savings in your bank account.

 

What does the ECB have to do with inflation?

The European Central Bank (ECB) regulates the total amount of money that is in circulation. It dictates how much money is put into circulation and when you have to cut it again.

So what does all this have to do with the ECB?
The ECB supports the economy. By regulating general prices such as goods and services, it adjusts the supply of money to match prices. This creates a small annual inflation of less than 2% per year.

Note:
By intentional inflation, the ECB stabilizes the value of money and the general prices of goods and services.

What is the difference between inflation and deflation

Deflation is exactly the opposite. The prices for goods and services drop permanently, which is of course great for us as normal consumers at the beginning .
Permanently it has bad effects, because if the prices are permanent be reduced, all companies sell their products and goods well below the market value, which can ultimately result in the dismissal of employees, since these are no longer affordable for the respective companies because there are too many losses due to too low prices.

Who is particularly affected by inflation?

Unfortunately, it is the people who already have the least.
Pensioners, unemployed, welfare recipients and low-wage earners are particularly affected, since each of the four consumes consumer goods like Food, heating oil, electricity or gasoline. Energy prices and food prices are therefore the first to be affected by rising inflation.

Regardless of the wealth, savers can unfortunately share it equally, as inflation kicks in every year and your hard saved money decreases .

What can I do about inflation?

To counteract inflation, you can use Invest shares.

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