why Bother About inflation ? (2)

A second reason for regarding inflation as undesirable is that it face a person who wishes to save in order to provide an income for his old age, or to educate his children, or to build a house, with avery serious dilemma. IF he invests his savings in life-assurance policy or in government bonds, or if he place them with a bank on fixed deposit, he can be sure that on certain dates in the future certain fixed sums of money will be forthcoming. But he takes the risk that inflation will reduce the real value of these sums to such an extent that he will find it impossible to meet the needs for which the savings have been made. On the other hand, if he invents his savings in some from of real property he avoids the inflation risk because it is reasonably certain that property values will rise at least as rapidly as the general price level. But he lacks the assurance that certain fixed sums of money will become available to him at certain Specified dates in the future because, while the value of property in general is likely to rise with the general price level, the value of his property may well fall, for example because of the establishment of some source of noise, or other pollution in the vicinity, or because bridge connecting the suburb in which his property is located with the rest of the city collapses. This is the dilemma referred to earlier; and the fact that inflation faces the ordinary, prudent individual with a choice between such unpleasant alternatives is strong argument for trying to prevent it.