Inflation and Deflation

As an investor, it’s vital to keep note of how the economy is faring when it comes to the purchasing power of the dollar, and the price of goods and services. Depending on the economy’s health and the current political climate, you may have to prepare your wealth for inflationdeflation, or some measure of both.

In the case of inflation, the purchasing power of a certain currency falls. This is usually correlated with the price of goods and services rising, which makes it difficult for consumer consumption to grow. If inflation rises rapidly, we end up with hyperinflation, which occurs when the purchasing power of the dollar decreases exponentially.

In contrast, deflation is when wages and the purchasing power of currency rises, and the price of goods and services are reduced. This usually occurs when productivity is at its peak and there is a decline in demand for goods and services.

Looking at major financial disasters like the Global Financial Crisis of 2008 and the Great Depression, it’s easy to see the considerable impact inflation/deflation can have on a society. So it’s important to keep an eye on the economy’s health so you can appropriately prepare for any kind of financial event.

In this page, you’ll find some interesting perspectives on the steps you could take to help keep your portfolio afloat should inflation or deflation strike.

Money Morning Australia