Store prices and inflation are rising not only in our country, but in almost every country in the world.
The planet has plunged into a "whirlpool" of general decline in the purchasing power of money, and even the dollar - the unspoken "king" of world currencies - is becoming cheaper right before our eyes.
8% inflation in our country, 4% in Europe, 5% in America... And the year hasn't even ended yet, and we can only guess how much the final inflation will reach. In this article, we'll talk about the causes of rising inflation and how each of us can protect ourselves from it.
1) G20 Summit concerned about rising prices
Leaders of the world's leading nations at the recent G20 Summit reiterated the risk of high inflation globally.
The continuous throwing of "helicopter money" has saved economies and supported populations in the most difficult of times.
However, the dire financial consequences of this forced measure will take humanity a long time to "clean up".
2) Is hyperinflation coming?
Excessive stimulus has predictably led to an uncontrollable "stagflationary spiral.
This is when rapid price increases are superimposed on severe economic difficulties (or, to use the boring language of economists, stagflation = inflation + stagnation).
This is the worst kind of problem in the economy, and potentially threatens to slide into hyperinflation, followed by the collapse of national financial systems.
The economy will be destroyed and entire generations will be condemned to live "in debt" for many years or even decades, taking casual part-time jobs to get by.
As was the case 100 years ago during the Great Depression.
3) The problem is not "printing" money
Rather, it is political and structural problems that are causing catastrophic distortions in the economy.
- Demographics: an aging and shrinking population reduces aggregate effective demand (so the economy goes downhill).
- New technology: Continuous technological innovation causes people to rapidly lose their relevance in the labor market, and their incomes go down (therefore, demand and the economy go down).
- Strong social stratification: low-income people are able to make expensive purchases only on credit (which is potentially fraught with a series of bank failures due to massive non-payment by the over-indebted population).
These and similar factors put sharp downward pressure on wages and force prices to rise.
As a result, the previous financial crisis of 2008-2009 will seem like nothing compared with the new one, which is inexorably coming.
The greatest risk to this bleak outlook is geopolitical.
4) Sharp increase in energy prices
Gas prices have reached record highs amid dual pressures: resurgent demand and shrinking supply.
It is not yet clear how Europe will winter this season.
5) What should we, ordinary people, do in this situation?
We have to realize that this is not the first crisis and certainly not the last.
So each of us needs to act with an eye to the long term.
In order to do this:
- Monitor and maintain the relevance of our professional competencies;
- if necessary, retrain in another specialty (in particular, digital, AI (artificial intelligence), social media (business support in social networks), etc. demanded by the market at the moment).
- be financially literate (read any book on the sensible handling of money);
- live "within your means",
- Minimize your use of credit;
- Add money to your "financial cushion" on a monthly basis;
- Regularly buy foreign currency and financial instruments denominated in foreign currencies (as a protection against domestic risks);
- Learn to multiply your savings competently.
IMPORTANT: Monthly purchases of index funds are the most effective way to protect against inflation.
As long as the money is invested with a view to a long horizon.
AND THEN THERE'S THIS:
It's not that bad.
Although there is no doubt that we continue to slide into inflation this year.
It will get easier next spring.
Provided the politicians don't make another mess of things.