How to protect yourself from inflation

There are several strategies that investors can implement to counter a scenario with prolonged price increases.

Before we learn about strategies to guard against inflation, let’s get to know it better. A steady and controlled inflation rate is good news for a country’s economy because it means that the outlook is positive and that goods and services are growing in value on a “healthy” trend.

The main cons of inflation is that people’s purchasing power decreases if wages do not grow in line with rising prices. That is why it is important to carefully monitor inflation trends and understand what steps to take to avoid suffering from it.

How to protect yourself from inflation

There are several steps investors can take to limit the negative effects of inflation. The most obvious is to buy those stocks that can benefit from rising prices, such as stocks of banks or companies that produce essential goods.

Betting on the housing market is also not a bad idea, because a fixed-rate mortgage allows you to lock in the cost over the long term. And because, with prolonged inflation, property values are bound to rise. A great classic when markets are turbulent are safe-haven assets such as gold, silver, and platinum.

The focus on commodities

A separate discussion should be made about commodities, because it has been clear for months now that the significant inflation we are experiencing is mainly caused by the sharp increase in the value of commodities in the markets.

But why have prices risen so much? The main reason is the sharp reduction in supply especially of oil and natural gas against the surge in demand. Corn and wheat, agricultural products of which Ukraine used to be the main exporter to Europe and many African countries, also suffered a heavy cutback. Thus resulting in a price boom.

And here one cannot fail to see a clear connection with the Russian invasion of Ukraine, which led Western countries to take a stand against Moscow, Europe’s main exporter of gas and oil. That is why buying in the financial markets assets pegged to the performance of commodities or large energy companies could bring good results.

What not to do when inflation runs

One mistake many people make is to think they are waiting for the situation to calm down to invest, whereas it is precisely through investment that one can protect oneself from prolonged price increases.

Keeping money in the bank will only cause a sharp reduction in one’s purchasing power. Even choosing stocks of companies working in labor-intensive industries is not advisable in an inflationary scenario, because rising personnel costs, added to higher raw material costs, will probably lead to less than satisfactory results.

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