There are countless factors that create inflation in an economy. This could be due to the rising commodity of prices, the ever-increasing oil prices and so forth. All this translates to higher petrol costs among consumers. You might find it hard to believe but stronger and booming economics is also a factor for inflation. This is because the increased demand for services and goods puts more pressure on supplies that can result in businesses raising the cost of their products.
How Your Investments and Savings are Affected?
For savers, inflation is just bad news. It erodes your money’s purchasing power.
Additionally, the low rate of interest does not help either because it makes it more difficult to get returns that could keep pace with the increasing cost of living.
The high inflation can even drive down the cost of bonds. Basically, this makes it less attractive, for you are locked at a certain rate of interest; interest that might not be able to keep up with the standard of living for the subsequent years.
One option being looked at is index-linked gilts. These are basically government bonds to which the interest value and payments at redemption is adjusted as per the rate of inflation.
Investing in equities can offer better protection towards inflation than bonds or deposit accounts. This is because they are not index-linked since companies have the power to raise their prices in order to cover the increasing costs. That being said, it should allow them to grow at the rate of inflation.
Companies Acting as First Line Defense for Inflation
Companies that are raising their prices in line of inflation have a tendency to fare better compared to others when the standard of living increases.
To give you an example, energy companies might do well in inflation because they can increase their prices in line with inflation or just when they feel to. Infrastructure companies like the ones in charge for government buildings, toll roads and the likes might do well too since they have long term contracts with the government with payments that are associated to inflation. This basically encourages the private sector to keep pouring investments.
Other known companies that are resilient to inflation are those that produce drinks and food or any essential items like toothpaste, cleaning products as well as prescription drugs. If you want to survive inflation and help your economy at the same time, then you better start investing in any of these business ideas and apply for a payday loan to get funding.