There was a time when bank deposits were considered an effective tool to fight inflation even in Italy. Then interest rates began to fall, reaching the near-zero minima that still persist today.
Inflation in Italy, +2.9%
This scenario has had negative effects on consumer savings, effectively decreasing the value of the money accumulated. According to the latest ISTAT data, inflation also increased in Italy, rising by 2.9% in October, the fourth consecutive month. This acceleration is largely due to energy goods, which have contributed almost two percentage points to the current level of inflation, but is beginning to affect an increasingly broader range of goods and services that could significantly squeeze incomes and limit the system’s ability to recover and employment growth. This alarmist picture is also shared by Confcommercio, which has forecast a reduction in consumption of as much as 2.7 billion. Figures that could grow further in view of the Christmas holidays.
Given these premises, it is useful to understand what action to take to protect oneself from this phenomenon.
Real estate market
The housing market has been a safe investment against inflation for years. As things stand at present, the resurgence of the price race could cause a new acceleration in this direction, but taxes could put a brake on this scenario. In any case, real estate still seems to be the preferred form of investment for Italians.
A recent survey by the Osservatorio on real estate markets showed that more than one Italian in four (around 27%) has made an investment in this sector, while 35% are planning to do so, but are waiting for the right moment. Finally, 32% admit that they would like to invest in real estate, but do not have the necessary capital.
Investing in equities
Equities are also seen as a good hedge against the loss of purchasing power of money. It seems quite logical that as the prices of listed companies’ products and services rise, so do their valuations.
In an environment of increased inflationary pressure, it becomes important to balance one’s portfolio by including “growth” and “value” stocks. Growth stocks are equities, usually technology companies, with a very high price/earnings ratio because investors believe in the project and expect the company to generate profits in the years ahead. The latter, on the other hand, refer to more traditional sectors (such as the energy market) and have an intrinsic value and a price/earnings ratio that is not very high. They are more stable, profit-generating companies and therefore appeal to investors with less risk appetite. In periods of higher inflation, it is value stocks that have generated better profits. Investing in equities, therefore, can be a good way to protect investors from the risk of capital erosion due to the run-up in prices.
Precious metals: is gold only for the bold?
Precious metals are often considered by industry analysts as the best way to protect against inflation. Among these, gold is undoubtedly the most popular asset, due to its limited availability in nature, even though its value is often linked to monetary policy instruments.
It is usually the case that when inflation rises, so do interest rates, and precious metals lose a lot compared to government bonds. The Fed’s current monetary policy and the announcement of record low interest rates in the US have stabilized the situation for gold holders.
Technology has removed the physical barriers, allowing gold to be held as a digital investment asset in addition to split purchases.
Diversification of business
The basic advice for anyone building an investment portfolio, especially during periods of high inflation, is to properly diversify and balance the assets included in it. A simple scenario on paper, but a difficult one for small investors with limited capital.
Orlando Merone, Bitpanda‘s Country Manager in Italy, explained:
“We always have an eye on market trends and the news of rising inflation in Italy doesn’t surprise us. Diversification of portfolios is an excellent way to protect against the declining purchasing power of money. There is a wide range of investment options available, with new technologies opening up new opportunities for both beginners and small investors. That is why on our platform it is possible to invest, in a simple and accessible way, in precious metals, ETFs and stocks, as well as Bitcoin, cryptocurrencies and cryptocurrency indices”.
Author: Orlando Merone
Orlando Merone, Country Manager for Italy at Bitpanda, has over 12 years of experience in the development and go-to-market strategy of digital products. He is an expert in the fintech field, having worked in banking, payments and crypto-finance companies. His previous experience includes Digital Magics, Italy’s leading startup incubator, listed on the Milan Stock Exchange, founding the pay-by-link virtual POS, and helping to grow Tinaba (Banca Profilo) in Italy. Prior to joining Bitpanda, Orlando was part of the teams at Circle and then Revolut, leading business development and partnerships in Southern Europe.