Inflation is rising fast, but what causes it and how can we protect ourselves?

inflation, daily

Inflation hits us every day and it makes money disappear from our accounts. Prices keep rising and it has a big impact on everyone, especially individuals and families on lower incomes. This July alone, inflation in the Czech Republic reached 3.4%. Is there any way to fight inflation? Let’s take a look at it

Reasons for inflation

Inflation in the Czech Republic this July was the highest in a year. However, it is even higher in reality because real estate and stock prices are not included in any official index, but prices for both are rising at a dizzying pace. One of the main reasons for this, of course, is the pandemic, which has only accelerated the price rise. But it is worth saying that many of the costs are also borne by the producers. They are not raising prices to match the rising costs of production. If that were the case, prices would be much higher.

The shipping crisis is not helping with inflation either, with a shortage of containers and reduced loading. In particular, the world’s third busiest port terminal has been halted again because of anti-corroliferation measures. Catching up on the weak first half of last year could slow price growth. It therefore looks more likely that we will see strong, year-on-year growth for most of the second half of 2021.

Inflation in numbers

Industrial inflation is at its highest since November 2004. In July, industrial producer prices rose 1.6% month-on-month. This was the fastest rate of growth since January 2008. The year-on-year rate is already 7.8%. Prices of intermediate goods (up 15.5%) and energy (up 9.1%) were the main contributors to the rise. The world is basically making up for the lost year last year and it is very evident in the price increases. For example, prices of metal products rose by 20.0% or prices of wood, paper and printing rose by more than 17.9%.

Of course, inflation has also hit other areas. This July, year-on-year growth is 5.2% in agriculture, 5.6% in construction work. Construction material prices have risen by 12.8% and their unavailability is pushing prices up further, with some items potentially rising by tens to hundreds of percent. Inflationary pressures are increasing in the construction sector in general, although they have probably already hit a ceiling in agriculture.

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How can we protect ourselves?

There are several ways to counter inflation. One option is to invest in assets such as equities or property. However, there value is subject to many influences, including expectations, so these instruments are suitable for long-term investors. Another option is to buy inflation-linked bonds. The nominal value of these bonds is adjusted according to the evolution of the consumer price index. However, the availability on the Czech market is limited. Another option is not to postpone a possible purchase until later. However now the prices of the material are often twice as high as before the pandemic, so it is better to buy now “at a discount”. There is also an option of investing in digital assets, which are steadily growing in value since their foundation. The best way to invest is to diversify in various types of assets and also never to invest more than you can afford to loose.


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