3 ways high inflation could ruin your 2021
StatCan reported that inflation in Canada rose 0.02% between April and May 2021 go up to 0.36%. The largest price increases were seen in gasoline, furniture and housing. It’s no secret that house prices have skyrocketed in recent years.
Looking at all this inflation, you might start to feel uncomfortable. Inflation is a term used to describe a sustained increase in the prices of goods and services over a period. Some might see inflation as a good sign for the economy, while others might see it as a sign of a struggling economy.
I’m going to discuss three ways inflation can ruin your year. I will also explain how you can use inflation to your advantage.
1. It deteriorates purchasing power
As the prices of goods and services rise, the first and most obvious effect is the deterioration of purchasing power. Suppose the price of a cup of coffee was half a dollar a few years ago, and the same cup costs $ 4 today. Such an increase in its price could have taken place for several reasons, including an increase in demand without a matching supply, the pooling of prices by dominant players in the industry, or simply because coffee has become more. popular.
Whatever the circumstances, higher prices for goods that cannot be replaced make it more difficult for someone to purchase them.
2. It increases borrowing costs
Governments are encouraged to control prices to avoid hyperinflation. Typically, governments rely on the relationship between inflation rates and interest rates to control prices. If interest rates are low, people can borrow money at much lower rates, which encourages spending and investment.
The increase in spending and investment will in turn lead to higher inflation and other problems. Central banks can cut rampant spending by raising interest rates. However, it is necessary to maintain a delicate balance so that rising interest rates do not lead to deflation.
3. It can encourage spending
When prices start to rise, the typical response is to buy now for less rather than later for a higher price. He can see consumers stocking up on things that are unlikely to lose value, like cash amid rising inflation. Filling the freezer with food, buying new shoes, filling the gas tank are all common things.
Many investors also choose to invest in gold and other precious metals to profit from rising prices in an inflationary environment. However, the volatility of these assets can negate their profits, especially in the short term.
Ironically, increased spending in anticipation of inflation can give inflation rates a new boost.
An inflationary environment can become devastating for stock market investors, as many investors sell their stocks to park their money in safe-haven assets. A good strategy to combat the impact of inflation on your portfolio is to invest in assets that benefit from inflation rather than lose it.
Suncor Energy (TSX: SU) (NYSE: SU) could be an ideal income generating asset to consider for this purpose. The energy giant relies on the sale of gasoline and the export of crude oil to buyers in the United States to generate revenue. Rising gasoline prices have largely contributed to the rise in inflation rates.
Oil and gas prices tend to rise during times of inflation. This means that consumers end up spending more on these products, resulting in even higher prices.
Although this effect is not always guaranteed, higher prices increase the profit margins of oil companies. Higher margins mean companies like Suncor deliver better growth and higher returns for shareholders.
Suncor is recovering from the damage it suffered last year as a result of the pandemic, declaring $ 2 billion in operating funds in the first quarter of 2021.
If you are worried about the impact of inflation on your capital, it is a good idea to allocate some of it to assets that benefit from an inflationary environment. Suncor could be a ideal stock to consider for this reason.
Speaking of Suncor Energy’s actions …
Should you invest $ 1,000 in Suncor Energy now?
Before you consider Suncor Energy, you might want to hear this.
Motley Fool Canadian Chief Investment Advisor, Iain Butler, and his team Stock Advisor Canada just revealed what they believe are the 10 best stocks investors can buy right now … and Suncor Energy was not one between them.
The online investment service they have been running since 2013, Motley Fool Stock Advisor Canada, has beaten the stock market more than 3 times. And right now, they think there are 10 stocks that are better buys.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We are straight! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer, so we post sometimes articles that may not conform to recommendations, rankings or other content. .
Foolish contributor Adam othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.