There is only one way to beat inflation and protect your savings: to invest, having a medium-long term time horizon. This is the only way to protect yourself against rising prices and the consequent loss of purchasing power.
In most of the UE the inflation reached a double-digit rate, 11.8% in November 2022 (a figure in line with the previous month), effectively transforming itself into a sort of silent tax, which day after day erodes the savings left to idle in the checking account. A phenomenon that is not only europen and that is proving to be much more than a simple blaze. According to a survey by the ECB, the European Union should end 2022 with an average price increase of 8.1%, which will be followed by two more years of sustained inflation: 5.8% in 2023 and 2.4% in 2024. An increase in prices that weighs twice on household pockets. On the one hand it increases expenses, from bills to the supermarket trolley, and on the other hand it causes savings to lose value. In such a scenario, immobilism does not pay. On the contrary. And the savers seem to have understood this.
Caution or Courage?
These numbers reveal all the caution of Italians as investors. A caution which, however, cannot always help fight galloping, double-digit inflation. Any form of investment capable of offering a return, even if minimal, is always better than parking in current accounts or in a safe. By slightly raising the risk bar, however, and adopting a medium-long term investment approach, it is possible to obtain better returns, which are also able to completely cancel the negative effects of the high cost of living on savings. The statistics of the last 20 years speak for themselves, showing an average annualized return on the stock markets, net of inflation, of 5.4% (Credit Suisse Global Investment Returns Year book 2022). In short, to protect yourself in a context of high inflation, rising rates and a slowing economy, simply moving your savings is not enough. Pandemic and geopolitical instability have demonstrated, once again, the unpredictability of events and the strength of their impact on the economic and financial world. We need to know how to adapt to market conditions and "adjust" portfolios according to the often hidden opportunities that the market itself is able to off.
The reason why the inflation that until a few months ago many analysts believed to be a temporary phenomenon has gotten out of hand is explained by a series of unprecedented, and largely unpredictable, circumstances. Central banks immediately ran for cover, quite suddenly reversing low-rate policies in an attempt to cool market tensions. The belief that global price growth was mainly due to a flare-up in relation to the post-pandemic recovery and bottlenecks in the reorganization of global value chains soon gave way to a more structural version, as data on the he employment trend in the United States, and partly also in Europe, showed a markedly overheating economy and unemployment rates close to natural levels.
The tensions on prices on the demand side, from February onwards, were joined by supply factors with the conflict in Ukraine: on the one hand, the reduction in imports of raw materials from Russia and Ukraine; on the other, the sanctions that Europe has introduced on energy supply sources. The result of the combined action of the two factors has determined a constraint on domestic production, especially in some sectors, and the increase in energy prices, which sees Italy particularly exposed due to its dependence on Russian gas.
The result is that after two years of emergency linked to the pandemic, the economic recovery was first compromised by the recovery of inflation and then by the economic fallout of the conflict, suggesting the risks of a new stagflation as in the 1980s.
Effects on employment and wages
Without timely action, employment and wages are likely to be severely affected by this situation. There are several issues that will have to be addressed. In the first place, we need to understand how to govern inflation, especially the one imported by the increase in the prices of energy goods. Secondly, we need to understand how to protect the weakest segments of the population, whose incomes are eroded by the rise in energy prices and many basic necessities. Finally, it is necessary to understand how to set up industrial relations and the renewal of expired collective agreements to protect the purchasing power of workers in a context of growing inflation.