Will real interest rates ever be so high again?

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ardmacha

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CPI shows deflation of 6.5%, even the EU harmonised measure is -3%. Yet it is easy to get 3.5-4% for deposits. Last year I stached away as much as possible in 6% one year term accounts, so over the year I got +6% when inflation was -6%. Even allowing for DIRT there is a substantial gain. Now some of this is illusory as deflation is driven by food price falls and you don't really put money in term accounts to buy food. However people saving for houses have a real gain, something that hasn't happened since 1992.

Will real interest rates ever be so high again?
 
I can't imagine it ever recurring again when you will get a an effective 12.5% increase in your money (inflation plus deposit interest) purely by lodging it in a bank account.

I also lodged money at 6% last year but now I can get only 3.8% for the same money. This is still a good interest rate but all indicators point to less negative inflation (ie. it heading towards zero) and a reduction in interest rates.

The incentive just to let money lying in a bank is still there.
 
Most of our inflation has been due to the drop in mortage rates as a result as the ECB rate cuts. Mortage Interest accounts for about 6.67% of the overall CPI and is down 48.4% in the last 12 months. If we take this single price out of the CPI, the inflation is (only) -2.4% and the -6.5% the full CPI shows. Mortgage Interest is the main difference between the CPI and HCIP measures of inflation.

Of the remaining -2.4%, food, clothing, and transport account for 1.85% of it. The prices of most other categories have been relatively constant.

Given the nature of our current inflation it is hard to see how the real rate of return is much higher than the nominal interest rate. Mortgage interest has to be excluded and as stated people generally don't save to buy food.

There are some areas where money in the bank will provide more "bang for your buck" when it is withdrawn but it is not a general trend (yet!).
 
Whatever about the mortgage rate, the price of houses has dropped 20% in the year, so if you are saving for a house then you are doing OK!
 
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