Who would have thought that a pandemic was heading our way that had the capacity to create an insurgence in stagflation which might take us years to recover! With many emerging markets facing the heat of inflation that rose to 5% in the US and 3% in Britain, it is the central banks that are to be responsible for the heavy lifting.
Pandemic led to the high rise in inflation
Covid-19 still works as a disrupting factor for the world economy. The lockdown and the confinement leading to the complete shutdown of a few businesses saw a steep rise in inflation. However, the progress on vaccinations and treatment is likely to heal the inflation rates, as per the experts but is certain to be at a slower pace.
An opportunity for investment
The real estate market over the years has proven to be an excellent investment option during inflation. You can invest in real estate not only due to the increase of resale value due to the rise in prices but also as an opportunity for rental income.
Investing in stocks has proven to be quite a good option for many and the best areas to invest are Technology and FMCG.
What stands out as really good hedges against inflation are investments in precious metals like gold or silver that have been in our tradition for ages.
How harmful is it?
The rising prices may please the borrowers as the inflation-adjusted value of the outstanding debt tends to shrink but the savers are eroded of the purchasing power of the money they have saved.
There might be a trade-off between rising price indices and unemployment. As the central banks tighten the monetary policies to counter inflation, it might lead to downsizing the stimulus affecting job prospects.
The price of currencies slides downwards with a rise in inflation, thereby slumping exchange rates. Economies importing a major chunk of goods and services suffer the most.
Researchers believe that global economic growth is expected to continue at a slower pace in spite of the upcoming inflation. Economist Intelligence Unit (EIU) expects the global GDP to expand by 4.1% post a rebound of 5.4% in 2021.
As the Delta variant wave of Covid-19 seems to be subsiding, the manufacturing sectors are back in action with full force which makes it quite hopeful for the global economy to stabilize as it was during the pre-pandemic times.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only.