After the Great Recession, the inflation rate remained very low for a significant period. This allowed the banking system to have a great chance of recovering. Inflation has never risen above 2% over the past few years. Inflation has made a comeback recently and we are concerned that it will continue to rise.
What Is Inflation?
Inflation refers to the increase in prices in an economy over a certain time period. Over the course of history, inflation has fluctuated quite a bit. There was even a period when the price rose to 15%. The situation returned to normal after that point, and rates fluctuated between 2 and 4%. Recent inflation has returned and we have seen an increase in inflation of 5.4 percent over the past few months. This is much higher than the inflation we experienced the previous few years.
What are the Different Types of Inflation?
Let’s take a look at some of the most common types of inflation:
Demand-Pull Inflation:
Inflation that is driven by demand may occur when the demand exceeds the available capacity. If the demand for goods is high, then the supply can’t meet the needs, which causes an increase in product prices.
Cost-Push Inflation:
Cost-push inflation is when production costs are so high that they cause product prices to rise. This can lead to a significant increase in the product’s selling price.
Built-in inflation:
Built-in inflation is when workers demand higher wages to keep up with rising living costs. Due to rising labor costs, companies have to raise the prices of their products.
Inflation Advantages and Disadvantages:
The Advantage of Inflation
* A country’s low inflation could indicate a growing economy.
It’s beneficial for holders of fixed rate debt.
* It is geared towards consumption today, rather than tomorrow.
Inflation Disadvantages
* Product prices that are too high can cause economic problems and make it more difficult for consumers.
* This is a problem for people on a fixed income.
* The Federal Reserve must immediately take action.
How can you profit from inflation?
We have listed some ways you can profit from inflation.
Real estate:
In times of inflation, single-family homes that are financed with low interest mortgages perform well. The price of your property will rise as inflation increases, but the cost of the mortgage service will remain the same. This will quickly increase the value of your property. You can also save money on rising rents by purchasing a property in real estate.
Value stocks:
During times of inflation, value stocks perform better than growth stock during periods of inflation. These are companies with higher earnings than current share prices. These companies have strong cash flows when stock prices rise. Value stocks are a great way to make a profit in times of inflation.
Commodities:
Inflation can make it a good idea to invest in precious metals such as gold and silver. These metals are inflation-protected, and can be used in many situations. These metals are safe assets you can use in times of uncertainty. These assets can also be used when you are going through a very difficult time in your life.
Tips:
TIPS, or Treasury Inflation Protected Securities, are beneficial during times of inflammation. These are a great way to invest. TIPS holders will have the assurance that the principal will be returned and can also enjoy a steady income in times of need. It’s primarily used to reduce purchasing power erosion, but it can also be beneficial over the long-term.
This is how to profit from inflation surges. We have many more ideas that will benefit you over the long-term. Please get in touch with our team.