You must have known that America is seeing its worst inflation in the last 40 years. Likewise, most countries in the world are undergoing immense inflationary pressure. We have been hearing about inflationary pressure in Turkey for more than the last year going as high as 69.97% per year and likewise, Srilanka is presently reeling under inflation. We give hereunder a list of 38 countries in the world that are reeling under inflation.
Countries |
Rate of inflation % |
|
Venezuela |
5000 |
|
Zimbabwe |
92.54 |
|
Argentina |
50.942 |
|
Turkey |
69.97 |
|
Yemen |
40.745 |
|
Ethiopia |
25.203 |
|
Iran |
39.339 |
|
Zambia |
22.8 |
|
Libya |
21.11 |
|
Nigeria |
16.91 |
|
Lithuania |
15.6 |
|
Estonia |
14.8 |
|
Kyrgyzstan |
12.297 |
|
Turkmenistan |
12.45 |
|
Poland |
12.4 |
|
Czech Republic |
11.9 |
|
Netherland |
11.7 |
|
Latvia |
11.5 |
|
Uzbekistan |
10.97 |
|
Bulgaria |
10.5 |
|
Brazil |
10.06 |
|
Spain |
9.8 |
|
Seychelles |
9.962 |
|
Slovakia |
9.61 |
|
Romania |
9.6 |
|
Ukraine |
9.516 |
|
Belgium |
9.3 |
|
Ghana |
9.284 |
|
Georgia |
9.269 |
|
Belarus |
9.231 |
|
Pakistan |
8.901 |
|
Hungary |
8.6 |
|
Greece |
8.0 |
|
Germany |
7.6 |
|
Uruguay |
7.515 |
|
Croatia |
7.3 |
|
U.S. |
7.123 |
Now, the questions that come to mind are what is Inflation, what are the causative factors and how does it affect us.
Inflation is when there is more money in the economy that causes the price of goods and services to increase with respect to a certain period in the past say the last 6 months or a year or two yr. Here, when we say inflation is at a 10% rate, then it means that compared to prices in the past 1 yr, the price has increased by 10%,e.g. if the price of a good or service was $ 100 last year then now it would be costing $ 110.
The prime causative factor for inflation is excess liquidity or money in the market. This increase in liquidity or more money in the market is primarily owing to the benign interest rates in the Banking system which leads to more demand for a home loans, consumer loans, etc., and Industries go for expansion by setting up new units or expanding the capacities in their existing units. All this leads to more demand for goods and services. Since goods and services are limited and their supplies take time to match the demand. This shortfall in the supply of goods and services leads to an increase in the prices of goods and services. This easy liquidity and consequent demand for goods and services set a chain of reaction of liquidity and demand in the system resulting in a continuous rise in the price of goods and services over a period of time. This increasing trend of prices over a period of time is termed inflation.
There are other liquidity-enhancing factors such as reductions in taxes, doles given by the government, etc. During the epidemic governments throughout the world have given money to their citizens, whether needy or not. This doling out resulted in excess liquidity in the system and a consequent increase in the price of goods and services over a period of time. As the supply side can not be increased in a short span of time easily, there occurs a mismatch in demand and supply. Higher demand and limited supply mismatch results in inflation. This increase in prices starts pinching the people with limited resources such as daily wage workers, pensioners, salaried people and self-employed persons, and other people with limited resources. Besides liquidity, the other factor that affects inflation is supply-side constraints. When supply is constrained for a period of time, the prices begin to increase.
Having explained inflation, its causative factors, and its effect on common people. Let us now discuss what are the avenues for people to invest their money to protect money against rising inflation.
Several instruments such as real estate and commodities have been historically termed as inflation hedges. Investment in them would protect you from inflation losses. Then, there are inflation-indexed bonds where yields on the instruments change proportionately with an increase or decrease in inflation. Investment can also be made in such stocks that are capable of passing on the rising input cost to their customers, such as those in consumer staples, etc. should be considered. Their profitability will not be affected by the rise in inflation. Loans and Debt obligations- leveraged loans are also potential inflation hedges as well. Then there are floating rate instruments wherein the Bank and financial instruments can increase the rate of the interest payment with the increase in inflation thus ROI keeps pace with inflation.
Thus, Inflation is a phenomenon wherein the price of goods and services increases on account of the excess money/liquidity in the market or lack of supplies of them. There are some methodologies to protect one's hard-earned money by investing in real estate, purchase of gold, and other instruments such as shares of consumer products, floating rates financial instruments, loan, and debt obligation leveraged loans, and inflation-indexed bonds, all of these are inflation hedges.
Inflation is when there is more money in the economy that causes the price of goods and services to increase with respect to a certain period in the past say the last 6 months or a year or two yr. Here, when we say inflation is at a 10% rate, then it means that compared to prices in the past 1 yr, the price has increased by 10%,e.g. if the price of a good or service was $ 100 last year then now it would be costing $ 110.
The prime causative factor for inflation is excess liquidity or money in the market. This increase in liquidity or more money in the market is primarily owing to the benign interest rates in the Banking system which leads to more demand for a home loans, consumer loans, etc., and Industries go for expansion by setting up new units or expanding the capacities in their existing units. All this leads to more demand for goods and services. Since goods and services are limited and their supplies take time to match the demand. This shortfall in the supply of goods and services leads to an increase in the prices of goods and services. This easy liquidity and consequent demand for goods and services set a chain of reaction of liquidity and demand in the system resulting in a continuous rise in the price of goods and services over a period of time. This increasing trend of prices over a period of time is termed inflation.
There are other liquidity-enhancing factors such as reductions in taxes, doles given by the government, etc. During the epidemic governments throughout the world have given money to their citizens, whether needy or not. This doling out resulted in excess liquidity in the system and a consequent increase in the price of goods and services over a period of time. As the supply side can not be increased in a short span of time easily, there occurs a mismatch in demand and supply. Higher demand and limited supply mismatch results in inflation. This increase in prices starts pinching the people with limited resources such as daily wage workers, pensioners, salaried people and self-employed persons, and other people with limited resources. Besides liquidity, the other factor that affects inflation is supply-side constraints. When supply is constrained for a period of time, the prices begin to increase.
Having explained inflation, its causative factors, and its effect on common people. Let us now discuss what are the avenues for people to invest their money to protect money against rising inflation.
Several instruments such as real estate and commodities have been historically termed as inflation hedges. Investment in them would protect you from inflation losses. Then, there are inflation-indexed bonds where yields on the instruments change proportionately with an increase or decrease in inflation. Investment can also be made in such stocks that are capable of passing on the rising input cost to their customers, such as those in consumer staples, etc. should be considered. Their profitability will not be affected by the rise in inflation. Loans and Debt obligations- leveraged loans are also potential inflation hedges as well. Then there are floating rate instruments wherein the Bank and financial instruments can increase the rate of the interest payment with the increase in inflation thus ROI keeps pace with inflation.
Thus, Inflation is a phenomenon wherein the price of goods and services increases on account of the excess money/liquidity in the market or lack of supplies of them. There are some methodologies to protect one's hard-earned money by investing in real estate, purchase of gold, and other instruments such as shares of consumer products, floating rates financial instruments, loan, and debt obligation leveraged loans, and inflation-indexed bonds, all of these are inflation hedges.
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