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How to Profit from Inflation and Interest Rates

date November 10, 2021 time 5 min read 1811 views

Inflation just doesn’t sound good, does it? Whenever we hear about it on the news, it’s usually tied to a story about how our savings are worthless or products have risen in price — either way, negative associations abound. However, the reality is more complex. There is a way to combine inflation and interest rates to ensure you can profit, whatever happens.

Inflation carries some negative connotations, but is it deserved? Perhaps not.
Inflation carries some negative connotations, but is it deserved? Perhaps not. (Source: Pixabay)

Inflation Explained

Inflation measures the increase in the price of goods and services within our economy. When inflation occurs, prices go up and our dollars buy less. The US Federal Reserve plans for about 2% inflation each year and over the last few years, it’s generally been around that.

However, inflation is not always good or bad. Let’s take the housing market as an example. If you’re a homeowner and the price of your home inflates, your asset has increased in value. But if you were looking to buy a house, you’ll need to spend more as prices have risen.

And your enneagram core motivations and enneagram types core motivations might affect how you treat money and the way you manage your finances. If you’re smart, you can use the relationship between inflation and interest rates to boost your own savings. For instance, when interest rates are high, inflation tends to be lower because consumers are saving more. The reverse happens when interest rates are low, where consumers tend to spend – thereby pushing up inflation.

So why does inflation happen? And how does inflation affect interest rates? You can dig into it by reading some of the best books for financial literacy. But to save time, let’s take a look with us at three different causes of inflation and what we can do to stop it from affecting us negatively.

Cost-Push Inflation

How does inflation affect interest rates? The first thing we’re looking at is Cost-Push Inflation. This is when the price of manufacturing increases but the costs are pushed down to the consumer.

To exemplify, the US “trade war” with China. The bottom line is that tariffs placed on Chinese goods burdened American consumers with an additional $57 billion per year.

One of the reasons the US dollar has become the dominant global currency is its relatively stable inflation record.
One of the reasons the US dollar has become the dominant global currency is its relatively stable inflation record. (Source: Pixabay)

Many US manufacturers import materials and goods from China, such as steel. The higher tariffs mean it’s more expensive for American companies to import Chinese steel, so production costs have increased.

If production costs increase, profits decrease. Companies then have a choice: swallow the cost themselves or pass it on to you, the consumer. In most cases, you pay the price.

Demand-Pull Inflation

Inflation is also linked with demand. If people want something and there isn’t much of it to go around, its value will increase. The inverse is also true, as we’ve seen with tumbling oil prices — too much stock, not enough buyers.

You also see this in in companies like Apple. By having a strong marketing department and good products, they put themselves in a position where demand for their products is high. Apple then increases prices because it thinks people will pay extra — and generally, they’re not wrong. Apple has routinely increased prices beyond inflation — up to 20% in some cases — for various entry-level products.

Wage-Push Inflation

The third form is wage-push inflation. This occurs when a company raises wages, but in order to avoid a financial burden, it also raises the prices of its products. Obviously, this isn’t the result of one or two people getting a pay rise, but rather when the company’s hand is forced — for example, through federally mandated increases to the minimum wage.

How to Safeguard Against Inflation

How to profit from inflation? You need them to yield more than the rate of inflation to protect the value of your savings. The Fed plans for 2% inflation every year, so you need to exceed that figure with the interest you get from your compound interest investments. Unfortunately, traditional options like savings accounts and CDs (certificates of deposit) won’t pay much more than 1.35%. Your money then loses buying power with each passing year.

How to profit from inflation? Invest your money right now, and you can beat inflation and even grow your wealth. Stocks aren’t your only choice, either — there are lots of alternative investment products to choose from, one of which is secured peer-to-peer lending for bad credit.

You lend to a borrower who has put up collateral in return for a loan, paying interest rates three or four times higher than inflation. We have two investment options available and both comfortably beat the average rate of inflation. Our first option – Deposit money online, will net you 4% APY. It’s great if you’re new to some of the best P2P lending as you don’t need to set any terms yourself, and you can deposit and withdraw money whenever you want.

American interest rates are in the hands of the Federal Reserve, based in Washington DC.
American interest rates are in the hands of the Federal Reserve, based in Washington DC. (Source: Pixabay)

How does inflation affect interest rates? Consider the timing. Keep an eye on when the Fed raises or lowers interest rates, which can have a direct impact on inflation. When you have high inflation and interest rates are low, that’s when you need to be innovative with your investment strategy. Your bank account will be losing you money, and products like ours at MyConstant can give you inflation busting returns.

There are also times where we have low inflation and high-interest rates. Once again, this is a time where you can double down and make your returns go further than before. 

If you’re smart, you can use the relationship between inflation and interest rates to profit your money and start compound interest investments. If you’re after a higher return, take a look at our fixed-term investments. You get three fixed terms to choose from and a secured return of up to 7% APR by lending money online with us.

Whatever you decide to do with your money, the worst thing you could do is leave it in a bank. Yes, it’s covered by FDIC insurance, but it’ll bleed value with each passing year. In effect, you’re paying an inflationary premium for the protection of your money. But, if you can tolerate a little risk in return for a much larger return, you can beat the highest interest rates on savings accounts, inflation and have a nice little nest egg.

The bottom line is this: Whatever inflation and interest rates are doing, there is never a bad time to invest. 

Invest to earn more with MyConstant

As a beginner investor, you might want to begin with an easy-to-use, relatively low-risk platform. MyConstant is one such solution. 

Instead of just leaving it in your wallet, MyConstant offers you the opportunity to earn interest on crypto 4% APY. You may also decide to accept your returns in PRV – Incognito’s native token – at 7% APR.

Your interest is paid and compounded every second in the same cryptocurrency you use to invest, and you can withdraw anytime for free. MyConstant has also capped investments at $3M to ensure it can cover investor losses in cases where it or its partners are at fault. 

Our benefits:

  • Pays up to 4% APR on BTC, ETH, and BNB.
  • Option to take 7% APR in PRV (Incognito’s native token)
  • Interest compounded and paid every second.
  • Unlimited free withdrawals.
  • No minimum investment.
  • Available worldwide (non-US currencies converted to USD).

Sounds interesting? Sign up for a free account today and start investing.

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George Schooling

George Schooling

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