7 questions, 7 answers: How do you protect yourself against inflation?

Mr. Heise, how will inflation continue?

Christian Siedenbiedel

Editor in business.

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The last inflation rate in Germany was 4.5 percent.

In the next year, the rate will fall somewhat again - but not as much as the central banks are currently hoping.

Certain basic effects related to the corona pandemic will disappear.

But the very high rates of increase for producer prices and import prices reveal that there is still a lot of pressure in the pipeline.

We have extrapolated the various factors and come to the conclusion: Inflation is likely to remain at just under 3 percent on an annual average in 2022.

What can investors do?

Investors can look for real assets.

Gold, for example, should do well next year too.

The precious metal benefits when inflation is high, but it can suffer from rising interest rates.

The decisive factor is therefore the real interest rate, i.e. the interest rate after inflation.

And they are likely to remain negative globally.

Even if the US Federal Reserve were to raise the key interest rate to 1 percent by the end of next year, that would be extremely high, then real interest rates would still be way in the red at an inflation rate of 4 percent, which I consider realistic for America.

That works like a turbo for gold.

Can you also protect yourself with crypto currencies?

Some try that - but I would be skeptical whether crypto investments work as inflation protection.

You can certainly earn a lot of money with crypto currencies as an object of speculation, even now.

But there is no evidence that they work as a hedge, that their performance is systematically linked to inflation in order to protect against a loss of purchasing power.

You should only invest money, if at all, with which you want to take high risks and speculate, not the money you want to protect against inflation.

Are stocks a good protection against inflation?

It always depends on how high the inflation is.

At inflation rates of more than 5 percent, as all historical experience shows, companies and thus their shares can also get into trouble.

Because when inflation rates are very high, the central banks will take restrictive measures.

But from my point of view, inflation of this magnitude is currently not to be expected.

At the moment, inflation rates of between 3 and 5 percent must be expected at the global level.

In retrospect, that was actually the best magnitude for the stock markets.

A little inflation works as a lubricant for stock prices.

In the past, price developments were much weaker, especially when global inflation rates between 0 and 3 percent were low.

Does that apply to all stocks?

To the extent that inflation can be traced back to high demand for goods, as is currently the case, this essentially helps all industries involved in production and marketing. Consumer goods stocks are particularly interesting due to the strong surge in demand recently. The consumer goods manufacturers currently have high price-setting power, which is good in times of inflation. You should continue to benefit from the crisis-catching-up consumption. This also offers good business prospects for the IT sector: many companies are currently prepared to pay high prices for IT pre-products because there are delivery bottlenecks. Semiconductors and electronic components have become quite expensive. And all of the surveys show that companies are expecting procurement costs and sales prices to continue to rise.

Is real estate too expensive to protect against inflation?

Even if the central banks point out that there are clear exaggerations in real estate prices, especially in the major German cities, I still see no end to the upward cycle.

There are less prominent locations where prices are rising rapidly and where there is still potential to catch up.

The boom will only level off when government bond yields rise quite significantly into positive territory.

I don't see that at the moment.

I therefore expect real estate prices to continue to rise - albeit at a somewhat slower pace.

This means that real estate remains attractive as a protection against inflation.

What can consumers do who want to protect themselves from inflation in their daily life?

From my point of view, that's pretty difficult.

Prices are rising across the board at the moment, which is not so easy to escape from.

At best, you can do something with traffic and energy.

The prices for fuel and heating oil have risen particularly sharply.

Those who can do without unnecessary car journeys or use public transport will be able to save on petrol.

Cars with less horsepower are also an option.

But that's not easy either, because the prices for used cars have also risen considerably and new cars, especially those with electric drives, are quite expensive.

When it comes to heating, consumers should take advantage of the competition and pay more attention to costs.

And those who can afford it could invest in a more economical heating system.