Inflation is a weapon that may bring millions of dollars for someone who can use it wisely whereas it can be deadly stuff against those who get paid for their 9-5 work with a very limited sum of money to be invested.
Many of us are unaware of the fact that inflation is a good thing if a company/factory has no problem with selling the same product at an “inflated” price.
Let’s say a factory sells jeans for $10 with desired inflation levels (around 2% - 3% for top central banks). When inflation hits the markets, the factory does not hesitate to reflect the current rise of production costs + expected hikes in the price of raw materials. Consequently, the same jeans will be sold for $15 in 2 months (as it takes some time to run out of stock).
The income of the customers increased and paying $5 more for jeans will never hurt them. From the side of the owner of the factory, increased costs ($3) + common expectations of more spikes in prices ($2) let the factory increase the profit by 20% only with the help of what everyone expects.
Do you think the owner of a company/factory will be unhappy with the occurrence of inflation when they can directly reflect the change in their products/services?
Taking Advantage of Inflation for Individuals
I think the major point for individuals to utilize the growing inflation is timing their actions. When the inflation waves start to grow, central banks initiate interest rate hikes to slow down the pace of increase in prices. As the interest rates increase, the rates of loans follow it, as well.
In the era of inflation, debt is your friend. When you have $1m debt under 25% inflation for 2 years, your debt loses 1/4 of its value every year. It is like paying your debt indirectly via the melt of purchasing power of the money. As inflation increases, so do wages. Your salary will be increased accordingly maybe once or twice a years though your debt is stable and losing its value in the course of time.
If you take a good time to get into debt to buy a house via a mortgage, buy a car with loans or invest in stocks or crypto markets if the market is in an uptrend. Do not forget, the money-losing value is not yours, it's someone else's.
So, basically, inflation is always shown as a black swan case for the economies. Contrary to the common belief, it is also a time full of opportunities if you play the game according to its rules. During inflation, you need to be a risk taker and you should never be deceived by what others say.
When you look at the chart above, you will understand what I mean. It has always been a phenomenon in history. We can even claim that the era of inflation is the time when new reach classes are created.
Overall, inflation is a threat to common people as it directly targets their time / effort / stored value. Yet, when we stop looking at the case too emotionally, it is full of opportunities. Take your time and set your plan wisely 😉
How do you make use of the inflation in your country? Share with us below.
