Recent events such as the sharp rise in electricity prices and the return of petrol have brought the word “inflation” back to the front pages of newspapers. And the rising cost of living is not an exclusive issue for Spain: it is a trend we are seeing in economies such as the United States, the United Kingdom, and other Eurozone countries.
About the current issue
Despite the bad press, inflation is not bad in itself: a mild to moderate rate is often a sign that an economy is healthy. Most popular cryptocurrencies also play an important role. One of the reasons why the cost of living has risen in recent months is that the real growth of the world economy is recovering from the disaster of 2020. In addition, inflation may be positive for capital markets. company profit.
But it is undeniable that the advance of inflation, according to finance advisory services, even when it is easy, hurts people’s purchasing power. And also in investments. If we take the case of the US stock market benchmark, the S&P 500, the highest stock valuations took place with inflation rates between 2% and 4%. However, when it exceeds 5%, there is a tendency to reduce benefits and lower overall consumption levels. In these cases, it is important to never forget the concept of saving and investing.
Inflation leads to a loss of value
Investing money at zero interest is never fun, but at the moment it is pure frustration: with an inflation rate in Germany of 4.1 percent per year as in September 2021, the economies lose much of their value, in the euro area inflation in September it was 3.4% (as of October 1, 2021). It is estimated that growth is expected to continue until the end of the year, but the European Central Bank considers that growth is only temporary.
Share opportunities and risks
Investments in companies are considered real assets. Companies can pass on rising costs to their customers in the form of higher prices and thus continue to generate profits. Investors who hold shares in the company benefit from this. However, if interest rates rise due to market inflation, this could slow down the economy and thus business opportunities for companies.
Invest in gold, real estate, and bitcoins
Gold is considered to be the best protection against inflation. However, the price of gold is determined by the world market and does not depend on inflation concerns in Germany. During reunification in the early 1990s, for example, when inflation rates rose in the country, the price of gold reacted with difficulty.
It was different after the global financial market crisis of 2008, as gold is also seen as a haven. Real estate sometimes offers better protection against inflation than tangible assets, but they are often quite expensive.
Who will benefit and who will lose because of inflation?
Inflation favors debtors and harms creditors. The real value of receivables decreases as a result of monetary devaluation. As the largest debtor, the state is therefore also the largest winner. Because the inflation rate is higher than the interest rate at which the state has lent money, the national debt will melt by itself.