What to do in the event of high inflation

1. Good financial planning is essential, starting with keeping a budget, which is a record of revenues and expenses. Only if we are aware of how we spend our money on a daily basis can we know what we can do without, if need be, and how to save in periods of financial difficulty and uncertainty. Planning helps us understand how essential expenses that we cannot avoid (heating, bare necessities and so on) may vary, as well as what non-essential expenses can be cut out (lifestyle expenses). Once we have divided our expenses into categories, we need to increase our emergency fund, bearing in mind that in the event of high inflation, unexpected expenses may arise and threaten the balance of our revenues and expenses.
2. Making informed choices is even more crucial, which you can do by comparing different offers on the market before making a purchase, and before going to the bank to take out a loan or open a bank account: the Bank of Italy Guides can help you with this.
3. If we have savings, the first piece of advice to protect them from inflation is to diversify, that is to invest in several different financial products (deposits, Government securities, shares and bonds and so on). As well as being a good rule of thumb for any wise investor, diversification is useful for countering the negative effects of unexpected rises in inflation! Specifically, when inflation increases, interest rates and yields on financial assets tend to increase too: it is therefore important to invest part of our savings in short-term financial instruments, or in variable-rate instruments, whose returns adapt quickly to match the increasing rates (for instance, current accounts and short-term deposits, BOTs, Government securities and other variable-rate or inflation-indexed bonds, such as BTP€i or BTP Italia and so on)
4. If we need to get into debt, for instance by taking out a mortgage or a loan, we have to bear in mind that a fixed rate may be higher than a variable rate in the short term, but in the long run, a fixed-rate loan ensures that the borrower pays a fixed-amount instalment - thus protecting us against inflation - whereas the instalment amount of a variable-rate mortgage grows with the interest rates. In such cases as these, good financial planning becomes even more important to keep track of expenses and future instalment payments so that we can understand if we can afford them.

Generally speaking, when prices are rising, cultivating financial literacy becomes especially important in order to make informed choices as consumers, savers and investors.