How Should Inflation Influence Your Financial Decisions?

By Etienne Kiss-Borlase

Consider Inflation-Adjusted Investment Options

Inflation-adjusted investments, also known as inflation hedges, are designed to protect against rising prices. Treasury Inflation-Protected Securities (TIPS), commodities like gold and oil, and real estate are often included in these investments While these options may not guarantee substantial returns, they can help preserve your purchasing power during inflationary periods You must carefully consider these investments in light of overall portfolio content and risk tolerance.

Be Mindful of Debt and Interest Rates

Inflation can impact the cost of borrowing and the value of debt While inflation erodes the purchasing power of money, it can also reduce the real burden of debt over time If you have fixed-rate debt, such as a mortgage or student loan, inflation can effectively decrease the value of your outstanding debt. On the other hand, adjustable-rate debt can become more expensive as interest rates rise

Understanding the interplay between inflation and debt can help you make informed decisions regarding borrowing and repayment strategies

Evaluate Wage Growth and Income Protection

Inflation can influence wage growth and income levels As prices rise, the cost of living increases, and wages may need to keep pace to maintain a certain standard of living. When making financial decisions, consider the potential impact of inflation on your income Assessing wage growth opportunities, negotiating salary increases, and exploring income protection strategies, such as investing in your education or acquiring additional skills, can help you stay ahead of inflation and secure your financial well-being

Monitor Economic Indicators

Monitoring economic indicators related to inflation is essential to make informed financial decisions. Stay updated on critical metrics such as the Consumer Price Index (CPI), producer price index, and wage growth reports These indicators provide valuable insights into the current state of inflation and its potential impact on various sectors of the economy.