Wednesday, 8 October 2008

Interest rate question

If the nominal interest rate (base rate) is 4% and inflation is 5%, what is the real interest rate?

4 comments:

Blue Eyes said...

-1%?

We have had negative interest rates before - it can be disastrous in an inflationary period, but a good way out of a deflation.

Anonymous said...

Not so simple because everyone is scrambling for cash and cutting leverage.

Japan had 0% for a decade and (CPI) prices fell 2.2% while assets tumbled 80%.

One of the few good things Keynes every wrote was the quote about "pushing on a string".

Nick

Jackart said...

Er... Base rate is 5% and inflation is 4.8% so that would be about 20 basis points.

Alfred the Ordinary said...

Mine is 6.7% according to the things upon which I have to spend my money, plus the occasional frothing ale. Isn't that the real inflation rate? That which hits your pocket?