Začínáme s investováním
What Is Inflation and Why It Is a Reason to Invest
Key takeaways
- Inflation means prices in the economy are rising and the same money buys you less than before.
- Money in a current account loses real value because the interest rate is usually lower than inflation.
- Stocks and ETFs have historically grown faster than inflation — protecting and growing your purchasing power.
- Even 2% inflation over 30 years reduces the value of money to roughly 55% — a huge difference.
Inflation is rising prices in the economy — every year the same amount of money buys you a little less than the year before.
How does inflation work?
Imagine a bread roll cost CZK 3 last year. This year it costs CZK 3.06. Inflation is 2%. That seems small, but after 30 years that roll costs over CZK 5. The money you had last year has less purchasing power today — it buys you fewer things.
The Czech National Bank aims for inflation of around 2% per year. In practice inflation fluctuates — in 2022–2023 in the Czech Republic it exceeded 15%. That meant the real value of savings fell sharply.
What happens to money in an account?
Money sits in a current account earning zero or minimal interest. 3% annual inflation erodes CZK 100,000 like this:
- After 10 years: real value falls to roughly CZK 74,000.
- After 20 years: real value falls to roughly CZK 54,000.
- After 30 years: real value falls to roughly CZK 40,000.
No loss on paper — you still see CZK 100,000. But you can buy less with it than today.
How does investing protect against inflation?
Stocks are stakes in companies. Companies raise their prices along with inflation — their revenues and profits grow. The value of stocks therefore outpaces inflation over the long run. A global equity ETF has historically returned 7–10% per year — even after subtracting inflation a real return remains.
What do the numbers mean in practice?
You invest CZK 2,000 per month into an ETF with an average return of 7% per year. After 20 years you will have invested a total of CZK 480,000. Portfolio value? Over CZK 1,000,000. Inflation will "eat" part of that, but you will still be far wealthier than if you had left the money in an account. How this magic works is explained in the article Interest and compound growth made simple.
FAQ
Why can't the Czech National Bank simply set inflation to zero?
Zero inflation would mean people postpone purchases (why buy today if it will be cheaper tomorrow?), the economy stagnates and companies lay off workers. Mild inflation of around 2% stimulates the economy — it is a deliberate target of central banks, not a failure.
Does gold protect better than stocks?
Gold is a traditional hedge against inflation, but its real return over the long run is lower than that of stocks. Gold does not earn money — it just (hopefully) preserves value. Stocks carry within them the productive economy that creates new value. That is why an ETF is a better choice for the long-term investor.
Is a savings account enough protection against inflation?
It depends on the time period and the interest rate. During periods of high inflation a savings account is not enough — interest rates lag behind inflation. As a short-term reserve (3–6 months of expenses) a savings account makes sense. As long-term savings for 10+ years, equity ETFs have historically been a better choice.