As of the latest data from Eurostat, the inflation rate in Cyprus has reached 3.1%, which matches the rate observed in October 2023, making it the highest since then. The 3.1% inflation rate indicates a moderate rise in the cost of living, affecting various sectors such as food, energy, and housing. Notably, this rate is above the European average of 2.5%, reflecting ongoing economic pressures and the impact on consumers' purchasing power. Cyprus inflation has been on the rise, again, for the past year and a half.

Over the past year, Cyprus has faced significant challenges in curbing rising inflation, which has now exceeded the Euro area average. Although experts indicate that inflation is decreasing, this does not imply that the cost of goods and services is falling. Instead, prices continue to rise, just at a slower pace. For prices to truly drop, the economy would need to experience deflation, which involves a negative inflation rate. Deflation means an overall decline in the price levels of goods and services, contrasting with the situation where inflation merely slows down, indicating a reduced rate of price increases rather than an actual reduction in prices.

How to protect against inflation:

Avoid holding excess cash

To ensure your money doesn't lose value over time, it's crucial to invest rather than keep large amounts in cash. While holding cash can feel secure, inflation erodes its purchasing power. Investing money you don't need in the short term helps mitigate this effect.

Diversify Your Portfolio

Building a well-diversified investment portfolio is key to combating inflation. Diversifying across various asset classes, industries, and regions enhances returns while reducing risks. Consider these inflation-resistant investments:

• Real Assets: Investments like gold and real estate typically retain value or appreciate during inflationary periods. Real assets offer tangible value, making them resilient to inflation. Real estate, for instance, often sees property values and rental incomes rise with inflation.
• Stocks: Equities, particularly those with strong earnings growth and low debt, tend to perform well as inflation rises. Companies can pass on increased costs to consumers, preserving their profitability. Stocks in sectors such as technology, healthcare, and consumer goods can provide a hedge against inflation.
• Bonds: These bonds are indexed to inflation, providing a direct hedge against rising prices. As inflation increases, so do the interest payments on TIPS, ensuring your investment keeps pace with inflation.
• High-Interest Savings Accounts: High-interest savings accounts can help counteract inflation by offering better returns on your cash savings. However, options for high-interest savings accounts in Cyprus are limited, with local banks offering relatively low interest rates. This makes it more challenging for savers in Cyprus to find suitable accounts that effectively combat inflation.

By implementing these strategies, you can better safeguard your finances against the adverse effects of inflation. These measures help ensure that your savings and investments retain their value and continue to grow, even in an inflationary environment. Professional help is highly recommended.

What if you can't save money in this inflationary environment?

For many regular people, high inflation can make saving difficult as it erodes disposable income. In such cases, focusing on essential expenses, seeking additional income sources, and prioritizing savings can help manage the impact. It’s also beneficial to regularly review and adjust your budget to identify areas where you can cut costs and save more effectively. Creating a budget and reducing unnecessary expenses should be your first step, focusing only on necessities and your family's needs.

Our comments:

As the latest data shows, inflation in Cyprus has been steadily increasing for the past year. Consumers should be prepared for a scenario of a high inflation period in the next coming months. For many regular people, high inflation can make saving difficult as it erodes disposable income. In such cases, focusing on essential expenses, seeking additional income sources, and prioritizing savings can help manage the impact. It’s also beneficial to regularly review and adjust your budget to identify areas where you can cut costs and save more effectively.

By implementing these strategies, you can better safeguard your finances against the adverse effects of inflation. These measures help ensure that your savings and investments retain their value and continue to grow, even in an inflationary environment.

Financy Team

Jul 16, 2024