Don't Forget Future Inflation When Making Financial Decisions

Don’t Forget Future Inflation When Making Financial Decisions by Jia Liu, PhD – AIER

People predict future inflation in many decisions they make, from taking out a car loan or a mortgage, to deciding whether to put money in CDs, bonds, or stocks.  Future inflation is also important for the expected profitability of business investment projects.

Inflation for the price of a new home, for instance, was about 4.3 percent in 2015. If we estimate that this trend will continue, a home buyer would rather buy a house now than later.

Inflation is also critical to consumption and production. Sluggish price growth (or deflation) would be welcomed by buyers, but would hurt producers’ revenues and then put constraints...