First, what is the difference between inflation and stagnation?
Inflation: the loss of purchasing power over time, meaning the amount of money you have today will not buy the same product or service that you used to buy before.
Stagflation: (recession + inflation) expresses the weak growth of the economy and the high unemployment + inflation rates. It simply means that prices increase, job opportunities decrease, and factories and companies reduce their production or shut down.
Why is inflation increasing?
Any economic system aims to invest money and not hoard it in order to provide job opportunities, since hoarding eventually reduces the value of money. For that reason, the best thing to do is to invest or buy what you need at today’s price instead of buying it at a more expensive price tomorrow.
Have we reached the peak of inflation in Egypt?
My point of view is that when we have reached the peak or we’re almost there.
Is stagflation a possibility?
The possibility exists for the following reasons:
- The purchasing value of money has decreased significantly, so this will reduce demand. In addition, this is the 3rd time that the value of money decreased within a year, which means 3 strong blows to the value of the Egyptian pound
- Interest rates on certificates of deposits are increasing, and some economic institutions are expecting Egypt will raise interest rates again
- The Prime Minister’s statement not to start any new national projects directly denominated in dollars = reduced job opportunities
- Government statements to reduce government spending
Can we escape from the expected stagflation?
My personal belief is that if the IMF’s requirements are implemented to reduce the role of the state, this could encourage investors to make real investments (not just hot money), which means we will provide job opportunities.
What is the most likely possibility?
No one can answer you because the issue depends on the measures that the state will take during the implementation of the requirements of the IMF.
How do I know when we’re in a period of stagflation?
The decline in the rate of economic growth for two consecutive financial quarters is confirmation of the occurrence of an economic recession, and when it is accompanied by an increase in the value of commodities, then this is what confirms that we’re in stagflation.
What to do during periods of stagflation?
- Reduce your debts as soon as possible
- Look for freelance job opportunities that provide you with another source of income
- Reduce unnecessary expenses
- Sell old and unused things to provide liquidity
- Preserve the value of your savings, and the best way to preserve savings, in my opinion, is:
- Gold
- Investment Funds if you do not have a suitable background in the stock market. If you have a strong background, then invest in stocks directly
- Certificates of deposits
Note: If you’re a long-term investor, then periods of economic recession would be the most suitable periods for forming financial centers because the stock values are low, but in order to do this, you need to learn well how to evaluate stocks, and you also need confirmation that an economic recession is occurring.
This was not written by Thndr and this is not investment advice, you should do your own research before making investment decisions.
