Global Economic Outlook (G.E.O)
Tips to Deal with Inflationary Pressure. Vol. 103. August 22, 2022.
Dear readers, welcome to another edition of the Global Economic Outlook (G.E.O) - our weekly newsletter providing insights on finance, investment and the economy. In today’s edition, we will be discussing some tips to manage inflation.
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Tips to Deal with Inflationary Pressure
Inflation is high across many countries and ignoring it can be very costly for individuals and businesses alike. In Nigeria, the inflation rate for July 2022 was 19.64% while in Ghana, it reached 31.7% in the same period. The developed countries are not left out of the challenges of rising inflation as the United Kingdom (UK) recorded inflation rate of 10.1% in July while it was 8.9% in the Eurozone.
The Russia-Ukraine conflict is a major factor driving inflation higher as the cost of energy continues to rise and countries seek alternative ways to replace the resources being imported from both countries. Clearly, many countries are not prepared to cope with the uncertainty surrounding the global market and it will take some time for governments to be able to deal with the rising costs which is why each family and business has to find a solution to survive the inflationary pressure, at least in the short term. The below are a few tips:
· Purchase Items in Bulk – If you can afford to buy food and groceries in bulk, please do it. This is because prices might continue to rise in the near future and you will have to pay higher the next time you visit the market.
· Diversify your Investment – Diversification is actually an important strategy for all seasons as it helps to reduce the risk of losses that can come from a concentrated investment. If your portfolio is well diversified, there is a high chance that there will be some of your investment products that will do well in an inflationary environment.
· Borrowings should be at a Fixed Rate – Please avoid borrowing at a floating rate. This is because interest rates will likely be increased in the near future which will make your loan more expensive. However, a fixed-rate loan will remain the same over the cycle agreed with the lender.
· Invest in Short-term Bonds – You can invest in short-term instruments especially for a period of three months. This is because Central Banks will likely raise interest rates to tighten the economy and if you have locked in funds for the long term, you will not be able to immediately benefit from the higher interest rate that will come from reinvestment.
· Invest in Value Stocks – Value stocks are stocks of companies with strong fundamentals and who do not operate a cyclical business. There are many of such companies spread across telecommunications, Fast Moving Consumer Goods (FMCGs), Utilities and other such companies whose products we cannot do without whether there is inflation or not.
We know you will be expecting us to mention Real Estate as well but we believe Real Estate can serve as a hedge against inflation when bought during a non-inflationary period, but might not be the most appropriate in an inflationary environment. This is because properties/real estate are likely to be overpriced in an inflationary environment and Mortgage rates will also be higher as Central Banks increase rates to curb inflation.
If you have found these tips useful, you can share with others as well.
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The 8th Live Edition of the Global Economic Outlook (G.E.O) was held on Tuesday, 28th June 2022 with experts discussing the state of the Nigerian economy and how Small and Medium Scale Enterprises (SMEs) can navigate the difficult business environment. It is a must watch!
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If you have any questions or you need help on how to manage your personal finance, please send us an email at info@ecofinar.com.
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