Why is inflation so high? The best way to survive
In recent months, the French have seen the prices of many essential goods and services skyrocket. While wages have not changed, this inflationary trend has left many people frustrated and anxious about the future.
The latest Consumer Price Index (CPI) shows an 8.5% increase in inflation over the past year. This inflation data shows that the average French household spends more each month on Covering basic living expenses.
Hence the following question: Why is inflation so high?
Although there is no single factor that can fully explain this trend, there are a few major factors that have contributed to it. Here are a few:
Lots of money in the system
The COVID-19 pandemic has necessitated an extended lockdown, forcing people to stay home and businesses to close. While this measure helped stop the spread of the virus, it also resulted in a glut of money in the system.
People were spending less, but there was an excess of liquidity, which led to inflation. The French economic recovery plan was an additional influx of money into the economy, which contributed to an increase in inflation.
All of these were supported by a shortage of everything from food to other household items, so people had little to buy. In the end, people did Spending has begun The remainder resulting in higher prices for these products.
Supply and demand imbalances
When the demand for a commodity exceeds the available supply, the price goes up. People are willing to pay more for goods when they are not enough, which leads to higher inflation figures.
At the height of the pandemic, when spending fell and savings increased, demand for goods and services fell. But now that we are out of the crisis, people are more willing to spend, which increases demand.
The problem is that companies have had to increase supply faster to meet the growing demand. Shipping delays, staff shortages, etc. All of this contributed to this problem.
supply chain disruption
Supply chain issues often have a devastating effect on commodity prices. Without the essential inputs, firms cannot function optimally, which leads to supply shortages.
As a result of the epidemic, many French companies have experienced supply chain disruptions, including driver shortages, capacity problems with logistics providers, shipping delays, increased transportation costs, labor shortages, and so on. All of these issues have had a significant impact on commodity prices.
The war in Ukraine
The Russian invasion of Ukraine had a huge impact on global commodity prices, leading to inflation. The ongoing war has reduced the supply of oil, gas, foodstuffs, and minerals, driving up the cost of these products.
Sanctions imposed by many European countries and the United States have not yet improved the situation. Although intended to punish Russian aggression, these sanctions have deeply hurt the rest of the world.
In response to the sanctions, Russia continued to reduce its exports of these basic commodities, driving up prices even further. With winter approaching, countries that depend heavily on Russian gas may find it more difficult to cope.
High energy prices
All businesses need energy to operate. As a result, rising energy costs can only affect food and other commodity prices.
Sanctions against Russia have reduced oil and gas supplies to the rest of the world, which has a direct impact on other goods and services. Production, shipping and transportation costs have increased along with energy prices.
The comprehensive ban on Russian oil and energy imports has had an impact on oil prices. In response, companies increase their selling prices to meet production costs.
Lower interest rates
The central bank lowered interest rates in the wake of the pandemic to help people get access to affordable credit. This measure helped French households receive money, but contributed to the surrounding inflation.
With spending opportunities limited and everyone inside, more people kept their money. Add to that the government’s relief fund and you have the perfect storm for rising inflation.
Although the monetary authorities have raised interest rates slightly in recent months, the annual inflation target of 2% remains elusive.
What does the central bank do to fight high inflation?
A central bank helps ensure a stable and strong economy by promoting conditions that promote sustainable economic growth while maintaining financial stability. The central bank played its best role in raising interest rates in response to inflation.
Over the past few months, the central bank has raised interest rates several times in order to bring down inflation figures. This mitigating measure may take several months or years to stabilize prices. However, care should be taken, as one slip can lead to stagnation.
The recent interest rate hike means that borrowing will become more expensive, which will reduce the number of people who can access credit. The aim is to slow down the rate of spending and eventually inflation.
Furthermore, with fewer buyers, sellers will be forced to lower their prices to retain their customers. Over time (nobody knows for how long), this could slow rising costs and the rate of inflation.
How to survive high inflation?
If inflation has taught us anything, it’s that you have to be resilient and flexible to adapt to changing financial circumstances.
The effects of inflation are far-reaching and affect your finances and quality of life. To help you navigate the changing economic landscape, here are some tips on how to survive high inflation:
Build an emergency fund
A big cushion in your savings account will help you weather any economic shocks. TryIncrease your emergency fund To cover expenses for at least six months to maintain your standard of living and cover unexpected expenses.
Save more
The best way to protect yourself from inflation is to save more, that is, to allocate a percentage of your income to obtain a certain return on investment. But you need to be strategic.
For example, there may be better options than putting money into a traditional savings account because interest rates are low and they may need to catch up on the rate of inflation.
Consider this instead To invest in stocks Or high-yield accounts that offer a better return on your money.
Re-evaluate your spending habits
Now is the time to take a step back and evaluate your drinking habits. Do you spend a lot? Consider reducing overhead costs by cutting out dining out, membership services, gym memberships, etc.
Focus on the essentials — utilities, rent or mortgage, food and transportation — and research Ways to spend less for other things. With these simple changes, you’ll be surprised how much you can save in the long run.
Find additional sources of income
If you are struggling to make ends meet, consider accepting a file part time job or self-employment. It could be a file teacher job Or as a dog walker, or even a job as a driver for car-sharing services.
This extra income can help cover living costs and give you the life you’ve always dreamed of. It can also give you a sense of financial security and independence, which is vital in these uncertain times.
Be a bargain hunter
Current times require creativity and resourcefulness to stay afloat. In other words, pay more attention to the prices of goods and how they are spent. This period is the perfect time to research and compare prices, find coupons and look for sales and discounts.
use apps and credit cards, Get deals on coupon sitesTake advantage of seasonal sales and buy in bulk to keep costs down as much as possible.
Prepare for the long haul
It’s been more than a year since inflation rates started to rise, and it will take some time for the effects of the central bank’s policy changes to be felt. Therefore, you may need to prepare for the long haul and make some financial changes.
Despite the current rate of inflation and rising prices, you can still survive and thrive in this uncertain economic climate. You can weather the storm and emerge stronger by being flexible, proactive, and strategic with your finances.