Inflation: A Threat to Savings

Inflation weakens savings by reducing their real return. It is not the nominal capital that determines value, but the purchasing power it preserves over time. When returns are lower than price increases, savings lose value. This erosion mainly affects liquid, non-indexed assets (such as deposits and fixed-rate bonds), while some assets (like real estate and equities) offer partial and uneven protection, generally more effective against anticipated inflation than unexpected shocks.

Beyond the financial mechanism, it is unexpected inflation that redistributes wealth between creditors, debtors, generations, and social groups. It increases uncertainty and precautionary savings, while the lack of tax indexation can erode disposable income in real terms. These effects are amplified because households adjust their decisions based on perceived inflation, which is often higher than actual inflation, thereby extending its impact beyond the initial shock. At the macroeconomic level, a rise in the savings rate reflects not an increase in wealth, but an attempt to rebuild degraded real assets.

How does inflation concretely affect the real returns of different household investments? To what extent does inflation redistribute wealth between savers and borrowers? How does perceived inflation influence saving and consumption decisions? Why can a high level of savings persist after an inflationary episode?