Inflation is back in Hungary – the HCSO reported. Of course, this does not come as a surprise to the readers of BankRation, since so far the rate of cash outflow has been so low mainly due to the overhead cut. Nor is it a novelty that our money in the bank may become less and less worthwhile in the future. But now let’s see how bad the situation really is.

We have already written that as inflation rises and deposit rates get stuck, real yields may fall. This means that it is increasingly worthwhile to think carefully about our financial decisions and look for a more attractive investment alternative than deposits.

Even worse than inflation comes

Even worse than inflation comes

We need to look at investments with higher returns not only because inflation is rising, but also because the cash outflow is likely to affect primarily the products we are collecting. Few are set aside to pay more overheads later (the price of which may remain unchanged).

Inflationary pressures may come primarily from durable goods and imported products, as economic growth will also increase demand for them and the weakening of the forint will also have a negative impact. Thus, the current 0.1 percent inflation rate may continue to increase in the next period and may completely erode our real yield. This is the difference between bank interest rates and inflation.

Why bank rates do not rise

Why bank rates do not rise

Bank yields are primarily determined by the central bank base rate and the bank’s interest rate policy, the former not expected to change until the end of 2015. Banking policy is largely determined by the current legal environment. Banks are unlikely to take action on deposits when, due to the transaction tax, customers still do not move their money, so there is not much chance that the interest rate on deposits will change materially.

How do we deal with inflation?

How do we deal with inflation?

It is also important to know that we always have to count on deposit-maturity money. That is, if we put our money in for a year now, then the value of July next will be decisive. Which may be higher than the current average bank offer.

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