Do you Know How Important inflation is? Let's test it. If you had to borrow $1,000 from a friend and they agreed not to charge interest, but inflation is 3% annually, are you actually paying them back the full value of what you borrowed after one year? Who will have profit and lose? Understanding inflation in simple language 👇 My Advice a Answer. No, you are not paying back the full value of what you borrowed. Inflation erodes the purchasing power of money. If inflation is 3% annually, the $1,000 you borrowed today will only have the purchasing power of $970 in one year. When you repay $1,000 without accounting for inflation, the friend effectively loses 3% of the value because the money they receive back can no longer buy the same amount of goods or services it could when they lent it to you.
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