An index fund isn't going to return 4%-5% over a decade in a 7% inflation environment. Stocks offer a degree of protection against inflation (obviously if prices are going up then revenue is going up). There's other vehicles that can offer some degree of inflation protection.
The other thing is that as inflation goes up you'd expect interest rates to go up. Going into something like bonds at the height of that cycle can get you higher real rates than at any other time.
So what matters isn't inflation but rather real rates and valuations (P/E), certainly there are times where people are more motivated to save and there are times where they're more motivated to spend but I don't think it's as simple as saying that you shouldn't save at a 7% inflation environment.
What inflation does do is it motivates you to buy sooner. If you know the price of something is going higher, and you have no options to get a good return in the short term, and you want it, then you want to buy it sooner.
Yep. Real glad I bought my home before all of this pandemic/inflation craziness. Its estimated value is now up 33% from where it was four years ago. If I had waited until now to buy it would have been more difficult, as even though I've switched jobs and I'm making more money now I probably wouldn't have increased my savings enough for what I'd need for a downpayment and would have to dip into my investments to pay for it.
The other thing is that as inflation goes up you'd expect interest rates to go up. Going into something like bonds at the height of that cycle can get you higher real rates than at any other time.
So what matters isn't inflation but rather real rates and valuations (P/E), certainly there are times where people are more motivated to save and there are times where they're more motivated to spend but I don't think it's as simple as saying that you shouldn't save at a 7% inflation environment.
What inflation does do is it motivates you to buy sooner. If you know the price of something is going higher, and you have no options to get a good return in the short term, and you want it, then you want to buy it sooner.
Not an expert but lived through hyperinflation ;)