In 2020, inflation soared and consumers lost purchasing power. In 2021, inflation continues to disrupt everyone’s life, especially that of low-income people, and further aggravates social inequality.
The IPCA rose 8.06% in 12 months, up to May 2021. In the same period, the IGP-M accumulated an increase of 37.04% and, as it partially accounts for the readjustments of telephone and electricity services, plan contracts health and education, in addition to being used to readjust rental contracts, it is easy to imagine the damage to the budgets and pockets of families.
Even those who control expenses at the tip of their pencils were not able to buy the same things they used to buy, and I mean the lucky ones who kept their work and income. What to do to defend against the powerful and overwhelming inflation?
We need to split into two groups before making recommendations: the privileged, with money to invest, and the most affected, the lower-income people, with no financial reserves to face times of crisis.
Starting with the largest and most affected group, the recommendations basically refer to consumption. The advice is obvious and not always possible to implement: reduce and cut expenses.
Postpone any and all non-essential expenses, replace products, reduce the quantity to avoid waste, explore new points of sale, homemade food, healthier and more economical than that served in bakeries and restaurants.
Cancel, reduce service packages and renegotiate contracts, especially those that are fixed by the IGP-M, which devastated the pockets of even the richest. The rental contract, for example, deserves special attention and a good conversation with the property owner, who will prefer a reduction in the amount charged to risk the tenant’s default or vacancy.
For privileged investors, the recommendation is to look for alternative assets linked to inflation indices. It is not a perfect protection, due to short-term price fluctuations, but it does offer reasonable protection, with yields above the official inflation index in the long run.
Starting with government bonds, it is possible to purchase National Treasury Notes series B (Treasury IPCA+), which remunerate the IPCA variation plus a fixed interest rate that focuses on the corrected value.
Free of credit risk, they guarantee the payment of the real interest contracted when held to maturity. Early resale exposes investors to market risk, bearing in mind that the longer the security, the greater the price fluctuation.
Private bonds issued by financial and non-financial institutions such as CDB, CRI, CRA and debentures are also available. When the title is exempt from Income Tax, such as CRI, CRA and incentivized debentures, the investor is able to combine two attributes in the same application: protection against inflation and tax exemption.
To reduce credit risk, investors must assess the issuer’s risk rating, giving preference to those with the best rating, a rating assigned by risk rating agencies. Liquidity risk can be managed by purchasing bonds with multiple maturities.
The offer of investment funds linked to inflation rates is wide. Pension plans, with a natural long-term vocation, fit very well with the strategy of investors who seek to preserve capital and protect it against inflation.
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