How to beat stagflation? : Following are 6 ways to beat stagflation.
- You can diversify the investment portfolio
- Boost the quality of products
- Improve productivity
- Do short sell
- Minimize your debtors (accounts receivable)
- Increase the time of credits (accounts payable)
Firstly, let’s discuss what is the stagflation?
What is Stagflation?
Stagflation is the economic situation that higher inflation, slower economic growth (stagnation), and increasing unemployment all happen simultaneously.
According to the above definition, we can identify three main characteristics of stagflation. They are high inflation, high unemployment, and slower economic growth. Let’s discuss them separately.
High inflation – High inflation means increasing the general price level of goods and services rapidly than increasing the nominal wages of the people. High inflation reduces the purchasing power of money. So, during stagflation, people can buy less amount of goods and services.
“Inflation means the increase in the general price level of goods and services”To read more about inflation, kindly click here
High unemployment – Unemployment is the percentage of unemployed individuals in a labor force. High unemployment means an increasing number of unemployed individuals. When there is a higher number of jobless people, they cannot spend money to buy goods and services. So, it is difficult to stimulate the economy.
Slower economic growth – An economy that has limited economic activity is one that is rarely expanding. Low economic activity is caused by high unemployment rates, and high inflation, as well as a number of other variables like a decline in consumer confidence and a drop in factory orders.
How to measure stagflation?
As economists, we do not have an exact mathematical formula to calculate stagflation. Most economists accept that it would not just be one or two quarters, but a continuous period of high inflation and slow growth.
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6 ways to beat stagflation
1. You can diversify the investment portfolio
“Do not put your all eggs in one basket”. This statement tells us the importance of diversification of investment portfolios. If you invest your all money in one investment opportunity, if this investment opportunity is lost, you also will be lost.
So, you can invest in several profitable and trustworthy investment opportunities, when the economy is in a stagflation.
2. Boost the quality of products
Because of the higher inflation during the stagflation period, your cost of production is increased. So, you have to increase the price of products. But do not increase thrice only. You can increase the quality of products with higher prices. We are sure that this strategy will add additional value to your product and you will able to win the competition easily.
3. Improve productivity
You can improve the productivity of the production process by applying new technology. This will help to decrease the cost of production and then you don’t need to increase the prices of the products.
As example, you can automate the production process and as a result of this, labour cost of the company will decrease but production will increase. So, you do not need to increase the prices, and demand for your product will not decrease.
4. Do short sell
Short selling is one strategy for making money on stocks when price is declining (also known as “going short” or “shorting”). When an investor borrows a security, sells it on the open market, and plans to purchase it back later for less money, this is known as short selling.In general, short selling seems like a really easy idea. In the event that the stock declines after being sold, the short seller buys it back at a discount and gives it to the lender. However, short selling could be risky and requires thorough research.
5. Minimize your debtors (accounts receivable)
During stagflation, the real value of the money is decreasing as a result of the higher inflation. So, when you have debts, the real value of that debts will decrease. So, it is better to collect money from the debtors as soon as possible. You can ask them to zero debts. But if they are not able, you can increase the interest rates (not that interest rates more than inflation will be effective).
6. Increase the time of credits (accounts payable)
Accounts payable means what you have to pay for other parties. During stagflation, the real value of the money is decreasing as a result of the higher inflation. So, when you have credits, the real value of that credits will decrease. If you can increase the payback period of the credits, it will be profitable for you