Side Effects of Inflation
High inflation has become a major issue all around the world, with many countries facing it on a regular basis. Inflation can have a profound effect on the economy, leading to a decrease in purchasing power and an increase in the cost of living. Many investors are being forced into making changes to their behaviors as a result of the current inflationary environment.
Before an investor decides to make changes to their life as a result of inflation, they must first have at least some concern regarding inflation. Eighty-three percent of investors are concerned or very concerned about the current inflation rate, with 40 percent being very concerned, according to recent research from Spectrem Group. Only two percent of wealthy investors are not at all concerned with the current rate of inflation. This level of concern is causing these investors to make changes to their life as a result.
The most common change investors are doing as a result of inflation is spending more time looking for discounts and bargains, something 42 percent of wealthy investors indicate they are now making. A third of investors are buying less or choosing the cheaper brands when available. Delaying the purchase of an item that is very expensive is something that 29 percent of investors are doing as a result of inflation.
Nearly a quarter of investors are choosing to save more money as a result of the current levels of inflation. Similar to the earlier mentioned spending adjustments, 24 percent are spending less for luxury items. From an investing perspective only 16 percent are changing their investment portfolio at all, and 10 percent are consulting more often with their financial advisor.
These changes are likely to continue for at least some period of time, as the largest percentage of investors (35 percent) feel that the current rate of inflation will continue for one to two more years. That length of time may cause even more investors to embrace changes in their spending or investments. A third of investors feel inflation will continue only for six months to a year, while 12 percent think the current rates of inflation will last for less than six months.
High inflation creates an environment of uncertainty. This is because businesses and individuals are unable to accurately predict the future cost of goods and services. Investors need to make educated decisions on how long they feel the current rate of inflation will last, and the corresponding changes to their lifestyle as a result.