With inflation reaching record levels in the West, many people are worried about rising interest rates. They know that the banks are going to have to increase interest rates at some point because that’s one of the most powerful ways to control inflation. Without increasing the price of credit, we may wind up with even more liquidity in the economy.
For individual families trying to manage their money, though, the prospect of rate rises is challenging. It means higher borrowing costs and less money to spend on other things.
In this post, we take a look at some of the things that you can do to counteract rising interest rates and better manage your money.
Buy Your Non-Perishables For The Year Now
Prices could rise by more than 7 percent this year. Fuel could go up even more sharply. Because of this, it makes sense to buy non-perishable goods today instead of waiting for them to become more expensive.
Remember, many people have never lived through a period of high inflation. Because of this, they don’t know what to expect. Therefore, they may be behind the curve, something that will keep prices down for longer in the short term.
Switch To A Better Mortgage
If interest rates rise, so too will the cost of servicing mortgages. Homeowners will have to spend more each year on paying back their loans.
If you can, you’ll want to avoid this. Sites like Change Mortgage offer information about refinancing and setting up new mortgage deals. If you can, you’ll want to choose a fixed-rate mortgage that locks the bank into a low rate of interest for the foreseeable future.
Look To Stocks
Inflation seems like bad news for stocks, but they are among the best protection available. The reason is simple: when companies raise prices in response to inflation, the nominal value of their profits rises. When this happens, their share price also rises.
Stocks won’t necessarily help you profit from inflation, but they will curtain your losses. Right now, stocks have taken a dip because of fears of an interest rate rise. But compared to other asset classes, they are currently leading the pack.
Beware Of Inflation Hedges
Inflation hedges, such as gold, silver, and oil, tend to do quite well during the peak of the economic crisis. However, their performance tends to tank once central banks start raising interest rates. You can buy these inflation hedging assets, but you’ll want to ditch them quickly before central banks make any decisive moves.
Continue To Bet On The Dollar
Commentators on the internet like to trash the dollar, but there’s no sign that anything will dislodge it from world reserve status anytime soon. Uncle Sam continues to pay bonds on time, and the T-bill market is thriving.
If there is a global inflation episode, it is much more likely to be felt in countries with weak currencies, such as Turkey and China, than it is in those with strong currencies. There will always be demand for more dollars overseas, allowing the US to export inflation abroad.