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Inflation-Starting of a Financial Tsunami

Updated on June 27, 2008

Introduction

Everyday we are bombarded with the word "Inflation" and the way it is being directed is towards a Financial Tsunami. The after affect of this Tsunami is recession which has already started showing it effect. Central Banks of many countries have already increased the interest rate which is putting brakes in growth rate of that country.

In my present article I want to share my views as to how to tackcle the forthcomming recession. I know this will be a very tightrope walking for the common man as many of us have to replan our earning and spending curve. .

Inflation- Its impact

Inflation has a great impact on our lives as to :

1. It reduces our purchasing power

2. It reduces our net worth of assests

3. Changes our lifestyle to a great extent as we have to to compromise with our day- to day living.

How to tackle it

We cannot run away from the problem of Inflation as because it is deeply rooted to our daily lives as well as our future planning. This problem has to be tackled by living in the problem itself.

Suppose one spends 70 percent of his monthly take home salary to meet his household expenses. As his purchaseing power have decreased we have to reorganise our expences. Previously if he had gone out with his family to dine outside 3/4 times a month and as the food prices has gone up one has to cutrail it or minimise it.

One can curtail purchasing expensive gifts.

One can stop buying non seasonal fruits. Limiting the use of credit cards. Minimising expences depends on the individual. If one goes through his household budget he can surely find areas where it can be curtailed.

Trying to generate more income from the present level. One of the option is to change to a better paying one - but this may not be always feasible, but one can really opt for any part-time job.

SOME AREAS HIGHLIGHTED

  1. LET US SAY NO TO EATING OUT.

  2. USE MORE EMAIL TO CONNECT THAN CELL PHONE.
  3. TRY TO EAT LESS AND EXERCISE MORE. ( to save Doc's bill).

  4. RESTRICT GOING TO MULTIPLEXES AND MALLS.

The main impact of the Infation falls on the retired persons, prersons who lives on pension and or whose main source of income is Bank interest.

Let us think of a sitution a man's Fixed Deposit earns an interest rate of 8.5 percent per annum and the present inflation rate is 11.0 percent i.e he is having a negative worth on his investment. This type of sitution is very common to retired person as they are not willing to keep their asset into some risky investment tools.

AREAS TO INVEST

One has to really diversify his portfolio to ovecome the effect of inflation. There are some financial instruments which can give some goins over the inflation rate.

  • Funds which deals with a single currency or funds which buy single precious metal and so on.
  • Funds which invest in equity and Exchange Traded Fund (ETF'S).
  • One can look into the option of investing in GOLD as it can give fair amount of coushion.
  • Investing in mutal funds in the growth oriented sectors. Take out the profit and reinvest in another growth oriented sector as growth pattern changes.

It is really very difficult to manage one's portfolio and get a healthy return beating the inflation. Long term investment should always be kept in mind and at the same time profit booking is a must. .

Countries with high Inflation rate

Here is the list of some countries having very high inflation rate.

  • Zimbabwe- Over 1million percent.
  • Burma - Inflation is around 40 percent.
  • Iran - Inflation rose to 25.3 percent.
  • Vietnam- Inflation is around 25.2 percent
  • Egypt- Inflation rose to 21 percent
  • Pakistan- Inflation rose to 19.27 percent.
  • Iraq - Inflation is around 16 percent.
  • Qatar- Inflatio is around 14.75 percent

Conclusion

The rise in oil prices have already shown its effect in helping to raise inflation. But the rise in inflation oil price rise is not sole reason but mostly due to rise in food commodity prices. Banks had to increase its interest rate to curb the money flow thereby reducing the overall growth of a country. This sceniro is bad for any growing economy. As both both economically developed and developing countries are interdependent as this may result in recession.

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    • JasonPLittleton profile image

      JasonPLittleton 

      7 years ago

      Awesome hub! You've did it great.

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