Cases on Inflation
Monetary authorities could take exceptional actions to battle extreme conditions. In the 2008 financial crisis effect for instance, the U.S. The Fed kept near zero interest rates and pursued a bond-buying program namely quantitative easing. Critics have ever predicted that it would just cause spikes in the U.S. dollar, but it was proven wrong, the inflation declined steadily over the next eight years.
Quantitative easing might create hyperinflation, but could sometimes not lead to it. The reasons are too complex. The recession itself is a significant deflationary environment, quantitative easing could contribute to the effect. As a result, the U.S. regulators kept inflation stable at around 2% annually. Another bank such as The European Central Bank also used aggressive quantitative easing to battle deflation in the eurozone. They also used it against negative interest rates due to deflation fears in economic stability.
Many countries have various regulations. India for instance experiences higher growth rates to absorb inflation. India’s goal is around 4% with 6% or lower 2% tolerance. Brazil moreover, targets 3.5% with upper tolerance as much as 5% and low tolerance as much as 2%.
Stocks to Battle Inflation
The best hedge to battle inflation is stocks. In the virtual modern economy, addition to the money supply occurs as bank credit injects through the financial system. So, it can give immediate effects on prices happening in financial assets that are priced in currency like stocks. Next, financial instruments exist such as safeguard investment against inflation. It is TIPS (Treasury Inflation-Protected Securities. The option varied, people can use TIPS mutual fund or exchange-traded fund (ETFs). In order to get these stocks, ETSs and other funds can avoid the danger of inflation.