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This is a chart with the inflation rate in my country over the years:

enter image description here

It was the highest in 1993, at 256.1%.

I was wondering if it would have made sense to save money in the years of high inflation and have them regain value later on.

Logically, it makes sense you would want to do that. The money has less value but there is plenty of it. So you can save a lot in times of high inflation and then wait 10-20 years for the money to get its value back (assuming you can afford to save the money when inflation is high - I'm also assuming inflation will go down not go exponential and spiral out of control).

I was a kid in 1993, so I don't recall how things unfolded then. But does it make sense or are there other things to consider that invalidate this logic?

  • Wich country is this? – Hart CO Mar 31 at 13:54
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"Makes sense" is dependent on the available alternatives.

Imagine that you are able to save $100 a year.

  • If you have a 0% inflation rate, after a year you have $100 of "value".

  • If you have a 100% inflation rate, after a year you have $50 of "value".

Now, in either of the two scenarios, would it "make sense" to just burn the money? No. Even if the worst scenario you come up ahead by saving the money.

The considerations for make sense in the high inflation scenario would include alternatives like investing in assets that could profit from inflation (real state, gold), in foreign markets, whatever. In that case there is no difference between inflation or not, you just pick the best option available. The different scenario means that the best strategies might be different, but that is all.

So you can save a lot in times of high inflation and then wait 10-20 years for the money to get its value back

Unless there is deflation (negative inflation) the money does not get "its value back". What happens is that you just get used to the new value of money, and find it natural (of course, older people who usually have a harder time adjusting will continuously remember you that back in in their day you could have bought a Porsche by just five cents).

In any case, with high inflation scenarios (like the one shown in your chart) most of the population is usually too worried about getting their daily necessities and adjusting their way of life that savings and investments are not something they worry about.

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As SJuan76 noted, "cash under the mattress" doesn't gain value unless the inflation rate is negative. In looking at the inflation chart (which is a rate of change of prices), you might be implicitly thinking of it like a chart of the price index itself. If prices looked like that (a peak followed by a long decline), then indeed inflation would be negative and cash would gain value. But you said it's the inflation rate, which means prices were going up the whole time, sometimes quickly and sometimes slowly.

However, depending on investments, you can indeed profit from a drop in the inflation rate, as long as this drop is faster than expected by the market. Specifically, in 1993, if long-term bonds in your country's currency were trading, they presumably had very high interest rates since people were afraid high inflation would continue or even worsen. So if you bought such bonds at their depressed prices, you would see a big gain as inflation moderated and you continued to receive the large interest payments you'd locked in (or you could sell the bonds after their market price surged).

  • Yeah... I somehow managed to fool myself with my own chart. All the answers are correct to point out that you need deflation to bring back the value of inflated money... – Pips Mar 31 at 15:53
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I'm afraid there is a misunderstanding on the OP: With high inflation money loses its value, but when inflation becomes small again, money just stops losing value, but it doesn't regain its previously lost value.

Therefore, saving money under high inflation is not a sensible decision. When inflation is very high and you can't save your money in a bank account with an interest rate larger than inflation, it's sensible to save using assets not affected by inflation. A common choice is foreign currency.

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