Buying ETFs to protect in an inflationary environment

Inflation — also known as the silent killer of cash or deposits — is raging around the world.

This phenomenon seems to be a trend everywhere, from the consequences of overprinting money, to an already booming US economy to a resilient British sector. For example, the US inflation rate in April was 8.3%, while the UK CPI rose 9% in the 12 months ending April 2022.

According to traditional macroeconomic theory, high inflation is generally not a good thing because it indicates a spiral in demand for goods and services, exceeding supply. This means that prices will rise soon, which obviously reduces your purchasing power as a consumer because now you're buying fewer things per dollar than before.

There are winners and losers in this environment, so it's important to remember what's important to pay attention to.

Let's see who the typical loser is in an inflationary environment (or worse, if we're headed towards stagflation):

- Savers and savers

- Retirees living on a fixed income

- Variable variable interest rate borrowers

- Exporter

--Uncertainty in the global economy

- In an inflationary environment, traditional savers are clearly losers.

As prices continue to rise, the purchase value of money falls, and so does the real value of savings. Some might argue that savers are beneficiaries of rising interest rates on deposits, but this could have a serious time lag.

Borrowers on variable variable rate mortgages or personal loans will see higher interest rates, which will have a negative impact on cash flow.

Exporters will also lose — as commodity prices become more expensive than other countries, it will lose competitiveness in macro-global demand.