No matter where you go or what you do, there seems to be a topic that people always come up with: Inflation. You’d have to live in another world if you didn’t notice the broad increase of prices for everything. Milton Friedman, Nobel Memorial Prize in Economic Sciences, said once that “inflation is taxation without legislation” and that is a big deal nowadays because, for the same amount of money, all of us are buying less things than before.
An interesting fact about the inflation rates we are having at the moment is that a lot of countries were not used to this economic issue. People from developed nations would consider high inflation as something only related to the developing regions of our planet.
Why are most countries experiencing high inflation rates?
First of all, ‘high’ is not the same standard for all countries. According to a central bank poll of analysts, Argentina ended 2022 with almost 100% of inflation, while the US had over 7% and it was a 40-year-peak that led to the unpopularity of the current administration. It would be necessary to examine each case to clarify deep differences between their national economies.
However, it’s noticeable that inflation has affected everyone’s plans and spending habits. The COVID-19 pandemic had a catastrophic effect on the global economy as it stopped a huge part of the production and industrial progress for every nation. In addition to that, the military conflict between Russia and Ukraine made the energy more expensive and difficult to purchase.
Most governments tried to counteract this problem offering financial aid to their population. With that in mind, two words can describe the source of this inflation: High demand. By giving relief to households, this assistance allowed people not only to continue shopping, but also increased the consumption of goods beyond those of basic necessity.
If we apply the basic principle of supply and demand, we will have as a result that due to lack of production and excess consumption of certain goods, they suffered a price increase by the companies that made them. Central banks have established a restrictive monetary policy by raising interest rates (and therefore limiting the ability to acquire credit), but these measures take time to produce results.
How can we defeat inflation?
Even though most governments made increases on the minimum wage, the rise of average prices of goods has overtaken these efforts. That is why it is mandatory to find solutions in order to protect our personal financial planning.
A fundamental step to protect yourself from inflation is to make a budget. Most mortals have no idea how their salary melts right under their noses. In this sense, it is essential to sit down and review what you spend money on and why you do it. By taking into account our needs and putting aside those expenses that are not so important, we can take the step to save money.
However, saving is not enough. Remember that inflation is an imperceptible tax, and it will not matter that you are generating 4% annual interest on the funds you have in the bank if inflation for that year is 7%.
For saving to be a productive activity, money must be invested. Whether you are buying a property to restore and sell it, or starting to invest in the stock market, it will always be a wise decision to have a diversified portfolio.
The most daring people will try to keep their job and start a new business from home. That will depend on the risk you want to take to ensure a better future. In that case, it always pays off to invest in yourself.
The reason many are afraid to invest is because they have no idea how to do it. If you want to defeat inflation and become an entrepreneur, invest in proper education to help you make sound financial decisions.
An Ipsos survey released in partnership with the World Economic Forum found by November 2022 that 69% of the people from 36 countries expected inflation to keep going up in 2023. It seems like almost everyone knows what is coming, but very few smart people are taking some action to face this problem. Will you be one of them? Inflation is bad, but it is worse to do nothing about it.
References:
Heath, M., & Reuters. (2023, January 6). Argentina inflation seen at 95.5% in 2022 -central bank poll. Nasdaq. Retrieved January 10, 2023, from https://www.nasdaq.com/articles/argentina-inflation-seen-at-95.5-in-2022-central-bank-poll
Rushe, D. (2022, December 13). US cost of living continues to rise but inflation appears to finally be slowing. The Guardian. Retrieved January 11, 2023, from https://www.theguardian.com/business/2022/dec/13/inflation-report-november-cpi-reserve-rate
Stinson, J. (2022, November 29). Inflation: Seven in ten expect prices to continue to rise in 2023. Ipsos. Retrieved January 10, 2023, from https://www.ipsos.com/en-us/news-polls/global-inflation-monitor-november-2022
Submitted by Student Intern, Alessandro Odoardi For thoughts and queries email [email protected]