What does inflation mean?
Before investors take steps to protect their invested money, it is important to understand inflation and its consequences. Basically, we speak of inflation when the price level of goods and services increases. As a result, there is an increased amount of money in circulation and the money slowly loses its value. This is particularly beneficial for companies, who can pass the rising prices on to their customers – for them, inflation means higher sales and profits. Selected stocks offer investors opportunities with moderately rising inflation rates. If inflation rises particularly quickly, stocks, along with gold and real estate, at least offer the possibility of preserving wealth – more on that later.
Inflation often occurs alone. When inflation rises and meets a high unemployment rate – i.e. accompanied by economic stagnation – there is talk of stagflation.
Incidentally, if the economy not only stagnates, but the economic situation in a country worsens, this is called a recession. Gross domestic product (GDP) is declining significantly. When GDP is down year-on-year for two consecutive quarters, it’s called a recession. In times of recession, the government tries to stimulate the population to consume again. For you, that means there are tax cuts.
Deflation is the exact opposite of inflation. In this scenario, there are more goods offered in the market than there are buyers for them. As a result, the supply is greater than the demand and people no longer have enough money to buy the goods.
There is a risk of what is known as “rezflation” in the future. This made-up word was used by Daniel Saurenz of Feingold Research. This means an economic recession with inflation at the same time. If energy prices continue to rise and inflation continues to rise while the economy shrinks, this scenario could materialize, with negative consequences for investors.