What is Inflation and how can it affect us?

12/08/2022

 

Inflation translates as the increase in prices that occurs in goods or services during a certain period of time which causes a depreciation of the value of money which indicates that the higher the inflation, the fewer goods can be consumed with the same amount of money. This translates into a general increase in the prices of articles and services, therefore a lower purchase of these, causing negative effects on the economy of a country and its inhabitants.

When inflation in an economy increases, it is difficult to distribute income, plan a purchase, pay debts or invest in profitable things, since prices, which were a reference to allocate our money in the best possible way, are distorted.


Causes and consequences of inflation

There are many causes of inflation, but the most common one is when demand for goods increases faster than supply. This can happen in either our domestic economy or an international market where there's not enough production to meet that increased demand.


The main causes of inflation are the following:

Costs: When more money is pumped into an economy through printing, things start to skyrocket because fewer goods are available to buy at those higher prices, which means all sorts of problems arise, including shortages in many sectors which makes people unable to afford certain items they might need.

Demand: when demand increases, but production cannot keep up with this change in supply due to factors such as devaluation and the economic crisis that force producers to raise the price.


Where can you invest when there is inflation?


Currently there are many investment mechanisms to protect against the negative effects of inflation, including financial markets, real estate investments and finally the gold market and precious metals.

This last aspect is often used when the value of the currency decreases, which causes people to begin to lose confidence in it and look for alternatives to store their capital and assets, with gold being one of the first options.

Investing in gold and precious metals is one of the best alternatives since the value of these tends to increase in cases of economic uncertainty, geopolitical crisis and dollar instability. This means that gold is considered a safe haven asset par excellence that is in high demand under the current scenario.