Will Inflation Stay Dogged And How To Shield Yourself ?
The Consumer Price Index (CPI), or headline inflation as it is referred to, rose to 5.55% in November, edging away from the Reserve Bank of India's target of 4%.
With food prices on the rise, this spike will strengthen the resolve of policymakers to keep rates higher for longer, some of which the RBI had hinted earlier.
While the central bank left the key policy rate unchanged recently, it highlighted the risk to inflation from spiralling food prices.
The RBI's steadfast approach to maintaining interest rates to curb inflation reflects a cautious yet strategic economic outlook for India.
Analysing CPI Fluctuations and Economic Growth Forecast
Despite the inflationary pressures, India's economic growth remains robust, with factory output hitting a 16-month high.
The GDP growth forecast of 7% growth by the central bank shows they're really backing the economy's inherent power. But, given the ongoing high inflation rates, it's crucial for investors to play their financial cards more tactically.
Navigating Food-Driven Inflation
The surge in food prices, particularly staples like onions and wheat, has significantly contributed to the inflationary trend.
Food inflation, about half of the consumer price basket, jumped to 8.7% in November.
To curb prices, the government has moved to ban exports of onion, in addition to wheat and rice, and prohibited the use of sugarcane to generate ethanol for biofuel.
Yes, restricting exports to stabilise domestic prices can have unintended consequences. But the fact is that higher costs of these items have hit family budgets hard.
Getting the hang of core and headline inflation, how they interact and differ - that's really key.
Though the first type of inflation does not factor in fluctuating costs like food and energy, the second paints a more complete picture of how prices are changing across our entire economy.
Headline inflation is the worry, especially ahead of elections.
Investing In Inflationary Times
Inflation hits demand as discretionary spending and savings fall, in turn softening demand for goods and services. Also, when inflation rises, interest rates usually follow suit, messing with your savings and investments.
Investors should consider revising their portfolios in light of these economic changes.
- Embracing High-Yield Savings Accounts: In today's economic scenario, redirecting your savings into high-yield accounts could be a strategic move. Some of the Small Finance Banks and co-operative banks offer higher interest rates on savings accounts. Check the creditworthiness of these banks and invest some of your savings there. All deposits up to Rs 5,00,000 are insured by the RBI’s Deposit Insurance and Credit Guarantee Corporation.
- Adopting a Bond Ladder Strategy for Fixed-Income Investments: The current bond market offers a significant opportunity for astute investors. As interest rates rise, the bond market provides select lucrative deals. High-quality bonds become available at more appealing prices, boasting attractive yields. By implementing a bond ladder strategy, which involves investing in bonds with staggered maturity dates, you can ensure a consistent flow of income. This approach also allows for taking advantage of future rate hikes.
- Exploring Investment Options in a High-Interest Environment: The landscape of stocks and bonds shifts when interest rates are on the rise. Some assets are primed to flourish in these conditions. Experts state healthcare services, financial services, utilities, and communication services tend to be more resilient during rising interest rates. Consult a SEBI-registered adviser to identify assets that match your risk profile.
Squeezing Every Paise from Sky-High Interest Rates
So, it's like this: while many people see high interest rates as bad, they can be a good deal for smart savers and investors.
With India's economy now dealing with skyrocketing food prices and a robust growth trajectory, it's important to dig into the financial markets. With a savvy approach to your savings and investments, you've got a real shot at not just surviving this bout of inflation but actually turning it into an advantage.
Remember, staying informed and flexible is your secret weapon when the economy's acting like a roller coaster.