What to do so that inflation does not affect your purchasing power – CVBJ

Finance for non-financial

The return of inflation is forcing us to rethink the concepts of savings and investment.

Illustration: Gabriel Sanz

Updated on Monday, November 1, 2021 – 01:53

The 2008 financial crisis brought a good thing (in return for so many unfortunate ones): since then inflation had vanished from our recurring consumer nightmares. The more veterans still remember those extra cents (or pesetas, for the older ones) they took from us at the cafe after the holidays, with the salaries normally adjusting with a delay that left us with the body like that. During the last decade, prices have remained almost stable … until another crisis, the one caused by the pandemic, awakened the beast. Fortunately, we have the financial weapons to fight it.

“In recent months It reflects a continuous process of increasing inflation generated by the coexistence of factors such as rising electricity and fuel prices, and the breakdown of stocks of raw materials, facts that place the end of September with inflation at 4% ”, announces Rubn Garca Alija, Director of Establishments Santander Bank in Castile and Len. Thus, “the EU’s target is a maximum inflation of 2%”, but after the stifling of September, “it is already in sight that it will remain at high levels for several months”.

Once the problem is posed, let us approach it with caution, but without alarmism, because “part of this process can be understood as transitory, resulting from bottlenecks in different markets, such as semiconductor chips and raw materials. “. However, recalls Garca Alija, we must take into account the concern for the environment and health. If you want something, it’s going to cost you dearly. This is the case with “structural changes such as the energy transition, or changes in consumption habits towards more sustainable or healthy products which generate price increases”.

In addition, macroeconomic processes resulting from the awakening after the pandemic are at play: “The resumption of production processes currently in third countries, such as China, could also lead to increases due to the higher cost of labor and the entire production process. “ And they also affect “De-globalization, protectionism and regionalization of supply chains”. All this leads us to a ‘phase in which the same European Central Bank allow price levels well above its target of 2% to help the transition of the production model and the greater reduction of indebtedness in the member countries than to bring a higher collection of consumption taxes ” .

But how does all of this affect us on a daily basis? “A rise in prices can affect the purchasing power of households”, Garca Alija acknowledges this, but it is also true that, in the context of family economies in the euro area, “we have accumulated two consecutive years of rising savings rates. At the end of 2019, the rate stood at 12.7%; In the first quarter of 2020, with the first restrictions, it rebounded until it reached the end of the year at 18.9%, a historic high.

In the first half of 2021, the trend repeated itself, and we are now facing EU measures that encourage consumption“. All that savings will have to cope with “inflation rates of 4%, driving economic growth in our economies above 5% -6%, according to the latest report of the IMF“.

A strong point of these struggles, says Garca Alija, is “the financial education of families. Developing a family budget, which clarifies our income and expenses, would be the best place to start. Then it is convenient to perform actions such as small cuts in spending to generate savings, responsible and intelligent use of the credit card, seeking other sources of income, involving the whole family or anticipating future needs by anticipating those things that are known to be necessary in the most inflationary times “.

Secondly, we have to put our money to work. Garca Alija proposes as a general concept, to structure the investment, “the concept of real profitability, which implies that we do not stop only at the valuations of the financial profitability of the expected investment, but that we compare it to depreciation of the purchase value. power of money through inflation ”. Know that the battle can be tough. “We need to look for investment alternatives based on bond yields from major economies or the eurozone; it’s difficult, because the interest rates are so low. “

The tanks, so comfortable, don’t look very attractive. A study of EFAMA has analyzed with figures the opportunity cost and the loss of purchasing power of investors who choose this investment vehicle: over the last decade, if we take as an example an investment of 10,000 euros via deposits, 1,000 euros would have been lost. “Profitability today is linked to taking risks in investments, that is, depending on the different levels of risk, with moderate or balanced investment profiles. In a scenario of transformation, investment stimuli and expected economic growth, it does not seem unreasonable to focus our financial investments on investment funds that meet these criteria. “

Financial entities play a key role in this scenario. They do it, according to Garca Alija, “with a greater proximity and information, supported by digital banking, which has new tools such as expense counters, notification of major movements, the information push of automatic online subscription debits and better digital procurement tools that make the immediate contracting of any financing or financial product. We make it easier for families to manage their spending and investment decisions. “

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