How to beat inflation (2024)

FAQs

What is the easiest way to beat inflation? ›

Investing in shares over a long period has been proven to be one of the best ways to beat inflation. One of the central characteristics that helps companies and their investors endure or even profit from inflation is pricing power. Pricing power is key to a company's ability to pass on rising input costs.

Debt-Oriented Investments

Bonds or debt funds that invest in bonds are linked closely to interest rates in the economy, which works closely with the inflation rates. If inflation rises, interest rates rise. Interest rates and bond prices move in opposite directions. Hence bond prices will fall in this case.

The most common way to survive inflation is to cut small expenses. This means buying more affordable off-brand products, not buying products unless you need them to live, and exploring discounts. Find ways to increase your income like asking for a raise, moving to a different job, or using side hustles to make money.

One of the main tools The Fed uses to fix inflation is raising interest rates. This is an example of monetary policy. The government can introduce fiscal policies to reduce inflation by increasing taxes or cutting spending.

The U.S. inflation rate was posted at about 6.4% year-over-year as of January 2023, per the latest CPI data. The obvious solution is to ask for a pay raise of 6.5% or so to at least stay even with inflation, but that's not always the best strategy, experts say.

During inflation, funds flow into the stock market, and stock prices continuously rise. Money in those types of investment rise with inflation. Wealthier people probably own a home, that protects them from the rising rents caused by increasing prices. Also, gold and diamond rise during inflationary periods.

A December analysis by supply chain firm Flexport found the consumer preference for goods is holding steady. This period of inflation could end by the middle of 2023, Hogan estimates. “We're seeing prices come down and that will help shorten the inflation cycle,” he says.

Prices are currently coming down in some markets, and the national median price was ever-so-slightly lower in February 2023 than it was in 2022, but experts do not expect dramatic drops. In many areas where prices are falling, the declines have not significantly improved affordability.

How bad will inflation be in 2025? ›

When the prices for goods and services are rapidly rising, holding cash in your portfolio becomes less attractive. The prospect of prolonged inflation “argues against having too much in cash,” Christine Benz, director of personal finance and retirement planning at Morningstar, recently told The New York Times.

Inflation benefits those with fixed-rate, low-interest mortgages and some stock investors. Individuals and families on a fixed income, holding variable interest rate debt are hurt the most by inflation.

Money supply: When people experience an increase in income or spending opportunities, they are more likely to spend before they save. This often causes more demand than there is supply. This cause is linked to demand-pull inflation.

A substantial tax increase reduces firms' incentive to produce, thereby reducing the supply of goods and services in the economy relative to the quantity of money. In such a situation, prices would naturally go up—exactly the opposite of Bazelon and Singh's desired outcome.

Inflation occurs when most prices are rising by some degree across the economy. Debtors gain from inflation because they repay creditors with money that is worth, less in terms of purchasing power. And creditors lose the most, as they lend money when the value was high and get it back when it loses some of the value.

Low-income households most stressed by inflation

Prior research suggests that inflation hits low-income households hardest for several reasons. They spend more of their income on necessities such as food, gas and rent—categories with greater-than-average inflation rates—leaving few ways to reduce spending .

Holding long-term fixed-rate investments, such as long-term bonds, fixed annuities, and some types of life insurance policies, during inflation can be bad because their returns may not keep up with inflation.

After peaking at 6.2% in 2022, we expect inflation to fall to 3.5% for 2023. Over 2024 to 2027, we expect inflation to average just 1.8%—below the Fed's 2% target.

Will food prices go down in 2023? ›

Food prices are expected to grow more slowly in 2023 than in 2022 but still at above historical-average rates. In 2023, all food prices are predicted to increase 6.2 percent, with a prediction interval of 4.9 to 7.5 percent.

Seeing a tight labor market, the Fed says it anticipates upward inflation pressures to persist through 2023, so quantitative tightening and high interest rates will remain in place until further notice.

This means that the money you've invested in your 401(k) isn't going to increase as the cost of living rises. And as inflation increases, the purchasing power of a dollar decreases. As a result, your 401(k) returns can be negatively impacted during periods of high inflation.

Diversify Plan Investments

Diversification simply means spreading your investment dollars across different types of assets in order to minimize risk. During periods of higher prices, diversification can also help with minimizing inflationary impacts on your 401(k).

If stocks are the only thing on your financial agenda, it may help to expand your investments into bonds during times of high inflation. Index funds provide low-cost, lower risk avenues into the market without paying high fees. An IRA account or 401k is needed to access these funds.

But, relief may be on the way. While 2022 retail food prices are at an all-time high, price increases are expected to grow more slowly in 2023, according to the USDA's findings on food price outlooks​.

Key points. Inflation seems to be slowing, and some things could start to get cheaper in 2023. The cost of real estate, rental, cars, and gas could fall, at least a little. Don't get too excited about potential price drops, as there's still a lot of uncertainty about the economy.

Homebuyer.com data analysis indicates that, for first-time home buyers, June 2023 is a good time to buy a house relative to later in the year. This article provides an unbiased look at current mortgage rates, housing market conditions, and market sentiment.

Just about everything that we buy goes up in price with time. For example, an item that costs $100 today would cost $134.39 in ten years given a three percent inflation rate. In 15 years, the same item would cost $155.80, or over 50 percent more than today.

The dollar had an average inflation rate of 4.82% per year between 2020 and 2024, producing a cumulative price increase of 20.73%. The buying power of $1 in 2020 is predicted to be equivalent to $1.21 in 2024.

How much will a dollar be worth in 2025? ›

The dollar had an average inflation rate of 3.91% per year between 2019 and 2025, producing a cumulative price increase of 25.89%. The buying power of $12.55 in 2019 is predicted to be equivalent to $15.80 in 2025. This calculation is based on future inflation assumption of 3.00% per year.

Keep Cash to a Minimum

Danielle Miura, CFP, the founder and owner of Spark Financials, suggested, “You should keep enough money on hand to get you a couple of gallons of gas, pay for a delivery tip, or to help in unfortunate events,” or around $100-$200 at a time.

Where to safely keep cash at home. Just like any other piece of paper, cash can get lost, wet or burned. Consider buying a fireproof and waterproof safe for your home. It's also useful for storing other valuables in your home such as jewelry and important personal documents.

How much is too much? The general rule is to have three to six months' worth of living expenses (rent, utilities, food, car payments, etc.) saved up for emergencies, such as unexpected medical bills or immediate home or car repairs. The guidelines fluctuate depending on each individual's circ*mstance.

Money burning is thus equivalent to gifting the money back to the central bank (or other money issuing authority). If the economy is at full employment equilibrium, shrinking the money supply causes deflation (or decreases the rate of inflation), increasing the real value of the money left in circulation.

Adding certain asset classes, such as commodities, to a well-diversified portfolio of stocks and bonds can help buffer against inflation. Be cautious about overallocating to cash, but make sure your emergency fund is keeping up with rising costs.

With rising prices and no increase in wages, people experience a decrease in purchasing power. As a result, the people may need more time to pay off their previous debts allowing the lender to collect interest for a more extended period. However, the situation could backfire if it results in higher default rates.

Most people understand that inflation increases the price of their groceries or decreases the value of the dollar in their wallet. In reality, though, inflation affects all areas of the economy — and over time, it can take a bite out of your investment returns.