With inflation eroding the monetary system as we know it, having a solid understanding of how it works is critical for anyone looking to protect their wealth.
This includes knowing the different types of inflation and the factors that contribute to it. In addition, knowing the risks involved in investing during periods of high inflation can help you make more informed decisions about your portfolio.
There are a couple of inflation types: demand-pull inflation and cost-push inflation. When an increase in goods and services demand exceeds the available supply, this is generally known as demand-pull.
This results in prices rising to reach equilibrium. On the other hand, cost-push inflation happens when production costs rise, increasing prices.
Factors that can contribute to demand-pull inflation include population growth, increases in government spending, and increases in consumer borrowing. Factors contributing to cost-push inflation involve increases in the cost of raw materials, energy costs, and decreases in productivity.
Investing during periods of high inflation can be risky, as the purchasing power of your investment may decrease.
In addition, high inflation can lead to political and social unrest. Before making any decisions about your investment portfolio, it is essential to be aware of these risks.