Inflation, that is the cruelest tax, the patrimonial that is devouring our savings: and perhaps, without many of us even realizing it also because, at least in the specific case of Italians, cash is considered the real refuge, as demonstrated the logic of money under the mattress.
But the economy is a very different thing from the old dear habits: and the economy tells us that inflation erodes purchasing power, devalues liquidity, ditches the value of that same money that we keep parked in our checking accounts.
Inflation, in short, is enemy of that cash, of that cash, which we love so much.
As we pay more to get our daily coffee, and to fill up on petrol, we must remember that this also means that the money we keep in our c / c is worth less.
Inflation, in a nutshell, means the same amount of cash as that we had yesterday today is worth less, which means that our purchasing power has decreased and our savings have been eroded.
The phenomenon of rising inflation occurs for several reasons, but not always at the same rate we are witnessing, all with some consternation today.
And if inflation was already talked about long before the start of the war in Ukraine that exploded with the invasion of the country by Russia last February 24, today it is even more talked about.
Prices had started to rise abnormally already with the reopening of the post-pandemic Covid-19 economy, due to bottlenecks affecting various supply chains around the world.
The surge then intensified with the war in Ukraine and with the consequent intensification of fears about an imminent commodity supply shockOn the other hand, Russia is a world heavyweight in the commodities sector, with its rich resources of oil, gas, various minerals and metals.
Inflation thus continued to gallop, arriving to fly to 6.7% in Italy: which means that, out of those 100,000 parked in current accounts, 6,700 are lost. Which also means that, at this time, as Ray Dalio, founder of the world‘s number one hedge fund Bridgewater Associates had already feared, who “Cash is trash”. And therefore, willy-nilly, it is better to distance yourself from them.
Difficult to accept for some Italians, perhaps, attached to cash. But, as it also explains Poste Italiane, liquidity can be a risk:
“Thinking that liquidity does not involve risks is wrong. The main danger, in fact, is represented by inflation. The effects of inflation can be observed from two points of view: the first is represented by the erosion of the purchasing power of my assets over time, the second concerns the increase in prices. For example, 1,000 euros ten years ago today would be worth 875 euros in terms of purchasing power. The same 1,000 euros today would be 2,241 euros if they had been invested for 10 years in global equity markets and 1,156 euros if invested in global bond markets. History teaches us that the risk is not in investing, but in not doing it and the result is always the same even if we consider different time horizons ”.
Ditto the attention launched in March from Credit Agricole Italia:
“Inflation is the general increase in the prices of goods and services over a given period of time. This increase has a consequence that can be seen very closely: it is the decrease in the purchasing power of money. If prices go up, the same amount of money allows access to fewer goods and services. That said, we realize, it still sounds too abstract. So allow us to give a very concrete example, which is in everyone’s pockets. In February 2021, a liter of petrol cost around 1.5 euros. A year later, it cost about 1.9. This means that if last year with 20 euros we put about 13 liters of petrol in the tank of our trusty small car, in February of this year we were able to put 10 or a little more. The banknote is exactly the same – 20 euros – but the ‘top-up’ is a bit lighter. The same goes for other assets: bread, pasta, milk and so on “.
The same Ignazio Visco, governor of Bank of Italy, he warned before the war, on 12 February last, that inflation was “essentially a tax”.
On Econopoly of Il Sole 24 Ore the financial consultant Costantino Forgione explained the phenomenon in a very precise way, associating it with the assets, in the article Here, the real Patrimonial has arrived. What do we do now?
The consultant remembers that “The amount of liquidity on the current accounts of Italians today it amounts to just under 2,000 billion“And that” as is known, inflation erodes the purchasing power of money, damaging savers who see their savings progressively devalued, but in a perfectly similar way benefits the state by devaluing the debt it has borrowed, thus constituting a perfect mechanism for transferring wealth from saving citizens to the debtor State (…) With inflation at current levels, savers will lose 6.7% of their savings every year while the State will gain 6.7% of devaluation of the debt that it is called to repay over time: this mechanism will be repeated every year and not the only, single year in which a classic property tax is enacted “.
Now, regardless of how you look at it, whether you call it patrimonial or otherwise, the inflation tax, on current accounts, is a reality.
An analysis of Axa Investment Managers.
“Our savings and investments are inevitably eroded by rising prices. This is why all savers fear inflation, which in the long term limits purchasing power in the absence of alternatives to invest in. To give an example, on a reference date, 10 thousand euros paid three years earlier are still 10 thousand euros, or should a reduction be applied to that amount that takes into account the increased cost of living (for example 3%)? In a period of inflation, with the same 10 thousand euros you can no longer buy the same goods and services that you would have bought three years earlier. For this reason, it is better to have real yields as a reference, i.e. those net of inflation. It happens more rarely, in the case of deflation, that the capital returned is worth more. Generally, the saver does not perceive this difference and is led to overestimate the value of the gross interest received. It focuses little on return after inflation or does not pay attention to the so-called “total return” ”.
The impact of inflation on savings is also explained by M&G Investments:
“Let’s take an example. Let’s assume we put 10 thousand euros in a drawer, with an inflation rate of 5%. After three years we reopen our drawer and we find the 10 thousand euros, but in the meantime the prices of all the goods we usually buy have increased, and our treasury has unfortunately reduced to about 8,500 ‘real’ or adjusted for inflation. A ‘silent tax’ but for this very reason even more dangerous, as it steals money from us without us noticing it – which we can deal with with the right advice. But it is necessary to make use of qualified professionals, who in this case are financial advisors “.