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Does inflation have anything to do with making a dollar today worth more than a dollar tomorrow?
Wiki User
∙ 13y ago
Of course it does. Inflation is the devaluing of money over time. It is always displayed as a percentage. For instance, inflation (usually measured as the Consumer Price Index) one year might be 3%. That means that a dollar in the current year would be worth $1.03 the year before. The saying is kind of misleading though. Inflation usually happens so slowly that a single dollar will not be actually worth less after a single day. Take the rate of inflation for the US since 1968, 519%. Divide that by the number of years since 1968 (40), it comes to 12.975%. Divide that by 365... it comes to .03%. So a dollar tomorrow is only worth .03% more than a dollar today if you apply the 40-year historical average (it is actually different because inflation right now is not 12.975%).
While inflation makes one dollar today worth more than a dollar tomorrow, it (inflation) is not the only reason for that. Even if inflation is 0%, a dollar today is still worth more than a dollar tomorrow, for a couple of reasons like
1. if you can buy something today, you can enjoy it (one day) more than if you had bought it the next day
2. by investing a dollar today, you can earn interest, increasing the value of the dollar (in the US, the Fed does manage money supply and interest rates, so there will be some correlation between changes in inflation and changes in interest rates)
3. Perhaps, we will not be able to enjoy the worth of the dollar tomorrow.
Wiki User
∙ 13y ago
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If I understand your question correctly, when dealing with inflation, a dollar earned today is worth more than a dollar earned at any time in the future. This has to do with the concept of the present value of money. Because inflation devalues the dollar over time, a dollar earned today is worth more than say, a dollar earned five years from now.
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