Navigating Current Inflation

Understanding inflation and its characteristics is a core part of personal finance, so let’s learn how to benefit from it!

What is Inflation?

Inflation is the fall of purchasing power of a certain currency, as well as the increase in general product prices. When the inflation rate becomes too high, it becomes damaging to the economy. While savings and money lose value during inflation, the value of assets and real estate tend to keep up or even slightly beat inflation. But what exactly causes inflation? Simply put, inflation is usually a sign of quick economic growth. As people spend more money before products and services become more expensive, suppliers and wages are unable to keep up. This leads to many items becoming overpriced and hard to get.

How are we being affected?

Due to events such as Russia’s invasion of Ukraine and a disrupted supply chain due to the Coronavirus, oil prices have gone up significantly. This in turn leads to higher gas prices, with some parts of the U.S. currently paying over 4 dollars per gallon of gas. This makes it costly for many who have to drive to work or school. Wages also fall during high inflation, as raises aren’t being given out.

Investing during high inflation

Here are some great investments to make to stay strong during high inflation.

Stocks

Investing in companies, especially value stocks, can be particularly profitable during high inflation. Just make sure that any changes to the current situation won’t drastically affect your stocks.

Gold

While gold can be volatile in the short term, it is a stable and profitable investment in the long term(decades). As it is not tied to any currency, it is strong against inflation and has always maintained its value.

Real Estate

Historically, real estate has always risen in value during high inflation, so landlords can charge more rent. The growth in income is able to keep up with inflation. However, the effects of the Pandemic can cause changes to what has historically happened, as some might transition to remote work. While many of us don’t have the funds to actually own real estate, there are other ways in which we can invest, as discussed in our alternative investments blog post.