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According to INSEE data published on April 15, 2022, the consumer price index in France rose by 4.5% in March 2022. The situation is not much brighter on the other side of the Atlantic, where inflation in the United States accelerated further in March, reaching the highest level in more than 40 years, at 8.5% year on year, according to data provided by the Department of Labor on April 12, 2022. consumer price index in March for the year. On Tuesday, April 19, the IMF projected inflation this year at 5.7% for developed countries and 8.7% for developing countries.
In order not to lose purchasing power, it is obviously necessary to invest in investments whose profitability is higher than inflation. With inflation hovering around 5%, investment with guaranteed capital should obviously be avoided. So, what investments to turn to? Discover 4 investment ideas to consider when inflation.
If bonds are not recommended in the event of high inflation, there is a category to watch out for: inflation-linked bonds. Several countries issue such bonds, such as France, which issues OAT-i. The interest rate of the bond correlates with inflation and increases with it. Although these bonds are not available to individuals, ETFs nevertheless make it possible to replicate their effectiveness.
So, are inflation-linked bonds a silver bullet? Yes, if you predict inflation earlier than everyone else or if it turns out to be much higher than expected, because bond prices change according to inflation expectations. Therefore, they are cheap when inflation expectations are low and expensive when inflation expectations are high.
Goods, in particular metals, will tend to rise in price during periods of inflation. This is especially true of gold, which is considered a safe haven, even if the precious yellow metal did not always play this role during periods of inflation. In any case, it remains one of the most correlated assets to inflation.
The current context of inflation, due to the resumption of activities after very long months of the pandemic, as well as, of course, the conflict between Russia and Ukraine, leads to high inflation of many raw materials. Thus, energy raw materials, as well as agricultural raw materials, as well as all metals (gold, palladium, nickel, etc.) were particularly affected.
However, beware of the very speculative nature of many commodities, which should not encourage those who are not at risk to invest in gold.[MOU1] and other goods for mass insurance against inflation.
Equities remain one of the asset classes that can protect against inflation, as stock market prices tend to rise with inflation, especially if a company can pass on a price increase to its products. This is called pricing.
Companies that are likely to adjust their prices quickly and thus protect themselves from inflation are luxury companies or even companies in a quasi-monopoly situation, such as Coca-Cola. Banking stocks can also be attractive, as high inflation leads to tighter monetary policy and higher interest rates, which ultimately benefits banks.
Real estate on loan
Finally, it is often advisable to use the leverage effect during inflation, especially in the current context, when interest rates, even if they tend to rise, are still low, in any case well below inflation. If you are thinking of buying a main or second home, it may be time to do so.
However, be careful if your real estate investment is related to rental investment, as rents often tend to rise less rapidly than inflation, and be especially vigilant if the desired property is located in a rental control area.