How does inflation impact the time value of money?
When you have inflation, then one hundred dollars today, if kept in your pocket, will be worth less in a year (and less in more years as inflation remains). Prices of everything go up in inflation, so you can buy less with the money you have now. If you invest your money, bank or elsewhere, then you will have to compare how much your money is growing with how much the infkation rate is. If inflation is at 3%, and your money is growing at 5%, then you’re ahead. You can do more with youor money later in time than today. But if your money only grew at 2%, while inflation went up by 3%, you’re poorer when you cash in on your investment.
