Inflation rates are soaring, and many are facing severe financial hurdles. Inflation impacts nearly every aspect of our lives. With an uncertain economic future, financial literacy is imperative for success now more than ever. Knowledge is essential to protect oneself against the rising tide of inflation.
What is inflation?
Inflation is generally a macro-economic concept. It refers to the price hike of goods and services. It is directly related to determining the value of our money. Inflation is generally an extensive measure, such as increase in prices or overall living cost. It could be understood as the percentage price increase in a basket of goods and services over a particular period. In addition, consumers’ cost of living depends on the total value of various services and commodities prices and the ratio of each item or service in the household’s budget. To compute the mean living cost to consumers, the government conducts household surveys to detect a typical basket of goods purchased and track the expenses of this basket over time.
Understanding financial literacy concepts such as inflation is essential to determining an individual’s changing cost of living. Therefore, the cost of the basket at a particular period shown relative to the base year is called the CPI, or Consumer Price Index. The ratio transformation in the CPI over a specific time is an extensively utilized measure of inflation.
How can we prepare for inflation?
- Buying floating rate bonds
- Buying equities
- Rebalancing their portfolios
- Hedging
These economic times are tense and our purchasing power and value of money are changing. There’s only so much in our control when it comes to the economy. The best way to prepare ourselves is to stay informed. Financial literacy gives us the essential knowledge to understand inflation and how it affects our lives. Financial Fitness Group aims to explain complex financial concepts that may seem only digestible to financial professionals. The Financial Fitness Group is committed to providing comprehensive financial education and client engagement solutions to leading financial institutions.
To learn more about, check out our course, Effects of Inflation on Investments