This note presents revised and updated estimates of sectoral saving and financial balances adjusted for the effects of price inflation on net monetary assets and liabilities, using the methodology set out in the Bank's Discussion Paper No. 6, 'Real' national saving and its sectoral composition by C. T. Taylor and A. R. Threadgold.
In the discussion paper, it is argued that, to achieve a more complete inflation adjustment, measures of saving and income should reflect the effects of inflation on the real value of monetary assets and liabilities fixed in nominal terms. In periods of high inflation, nominal interest rates tend to rise to compensate creditors, even if only partially, for the fall in the real value of their assets. Thus, actual interest payments comprise both an inflation compensation element, equivalent to the partial redemption of a loan, and a true or real interest payment, which, given that movements in nominal interest rates tend to reflect price changes only incompletely, is frequently negative. In line with the discussion paper, this note defines 'real' income to be the value which an individual could consume without any change in the real value of his net monetary assets. Accordingly, measures of income which include net interest receipts are adjusted to reflect real, rather than nominal, rates of interest, thereby reducing the measured income of net creditors and increasing that of net debtors. 'Real' saving is the difference between 'real' income and actual consumption.
Real national saving and its sectoral composition