# Deflation and positive real interest rate [duplicate]

Economists say that deflation leads people to postpone their consumption because it increases the value of their money and gives them the ability to consume more in the future. But if a consumer saves his money in a bank with a positive interest rate, the value of the money also increases. Let's assume we have two situations:

• We have 5 % deflation. The consumer has 1000 dollars. If he postpones his consumption for a year, the real value of 1000 dollars will be $$\frac{1000}{0,99}\doteq1010$$.
• Now we have a 5 % nominal interest rate. If I put 1000 dollars into a bank, I will have 1050 after one year. Let's assume that we have 3,9 % inflation. Then the future value of my money in today prices is again $$\frac{1050}{1,039}\doteq1010$$

So why is the deflation considered to be such a big danger for an economy?

• @denesp I don't believe so. Feb 17 '17 at 8:27
• Perhaps you could give the first answer a closer look. Feb 17 '17 at 8:29