How to Defend Yourself Against Inflation? JumpTask Solution: Part 2
Inflation is rising around the world. Nevertheless, you can choose to take action and combat inflation.
Last week, JumpTask covered inflation in Part I of the series. We talked about what inflation is, current inflation statistics, and why colossal inflation is a problem. We also looked at one way to support your personal finances. Read Part I here:
This time, JumpTask did research to show you why inflation is rising, what central banks are doing to lower price increases, and how JumpTask helps you protect your money.
TL;DR
> Inflation is rising due to the war actions in the EU, supply chain issues, quantitative easing, and pent-up demand.> Central banks around the world are raising interest rates to combat inflation.> Higher interest rates pressure consumers and businesses, as borrowing and spending are more expensive.> JumpTask allows users to earn and invest in $JMPT. Investors also can maximize their $JMPT returns via staking.
Why is inflation rising?
There are multiple reasons why inflation is extremely high around the world:
- War Actions in the EU: An ongoing war in the EU is causing an increase in energy prices. The conflict is pushing oil and gas prices to skyrocket, which is the primary driver of rising inflation.
- Supply Chain Issues: The pandemic caused supply chain disruptions worldwide, which made the transportation of goods more expensive. The lockdowns in China are still ongoing, affecting global trade and prices.
- Quantitative Easing: The Federal Reserve (the central bank in the US) used quantitative easing to support businesses and individuals during the pandemic. A record amount of money was created and injected into the economy, which caused inflation to rise.
- Pent-up Demand: People were restricted during the pandemic lockdowns. As the restrictions were lifted, people began spending more. When demand for goods in services increases, prices go up.
Understanding inflation is important. But what are central banks doing to tackle inflation and bring it down?
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Central banks and interest rates
To understand how interest rates affect inflation, we first need to understand what interest rates are. In short, the interest rate definition depends if you are:
- A borrower. An interest rate is the % you pay to someone for borrowing.
- A saver. An interest rate is the % you get to your account for saving.
Central banks set the main interest rate in an economy (called the ‘Bank Rate’ in the UK and the ‘Federal Funds Rate’ in the US). It is the key rate, as it shows the cost of borrowing for all other banks. As a result, banks adjust their own interest rate accordingly which is charged to consumers and businesses.
Effectively, central banks control the cost of borrowing for all other economic players: other banks, businesses, and individuals.
Let’s take a look at the US example to see how interest rates evolved over time:
Two key trends in the graph are as follows:
- From 2020 to 2022: the US central bank kept the interest rate at only 0.25%. This was done to support businesses and individuals during the Covid-19 pandemic. When interest rates are low, borrowing money and spending it on goods and services is easier, which supports economic growth.
- From 2022 onwards: the central bank raised the interest rate significantly to 1.75%. This was done to tackle inflation. When interest rates are high, it is more difficult to borrow money, and spending on goods and services goes down. This leads to lower price increases.
The key idea is this: central banks use interest rates to combat inflation. They raise them, which makes borrowing and spending more expensive. Less spending eventually leads to lower increases in prices.
Nevertheless, personal finances of everyone are affected negatively. Is there anything to do to support your personal finances? One way is creating an additional source of income, as discussed in Part I, and the other is equally important.
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Invest
One thing you can do to protect your money against inflation is to invest. Holding your money in a savings account is an investment, but it is not the best option. Savings accounts generally provide you with minimal returns. In the US, for example, the average annual interest rate on a savings account is only 0.08%.
Another option is to invest in cryptocurrencies, which is a rising investment vehicle gaining trust as time passes. Notably, crypto involves a higher risk than holding your money in a bank. But there is also a higher upside potential because bank savings lose value due to inflation and pay nothing in return. Crypto investors generate returns in two ways:
- Capital Appreciation — cryptocurrency tokens have the potential to go up in value
- Passive Income — tokens generate passive income via staking, lending or yield farming
For example, $JMPT staking currently offers an APR of 20.3%. It also has other benefits for beginner investors:
- People can start staking from 10 $JMPT without significant commitments
- Investors receive staking rewards every 10 minutes
- Everyone can enter and exit the staking pool anytime without penalties
There are other investment options, for example, real estate or stocks.
In real estate, however, the entry barriers are high as one has to spend a large amount of funds on the down payment.
Stocks, on the other hand, are easier to get into. Conversely, picking individual stocks requires significant research and involves risks. Choosing to invest in the stock market index is less risky, but the average returns investors can expect are 10% a year.
It’s necessary to keep some of your savings in the bank for everyday purchases or emergencies. Nevertheless, the rest should go to investments of your choice.
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Dealing With Inflation: Earning and Investing
As everything becomes more expensive, people can create an additional income source and invest their savings. JumpTask offers both: freelancers can complete simple tasks and get paid on the side. They can also invest in crypto tokens — $JMPT, and maximize their returns via staking. Inflation is rising, but people can take concrete steps to withstand it.
Liking what you hear? Sign up on JumpTask. Invest in $JMPT. Join the revolution.
