The inflation rates are the rates which tell you by how much percent the prices of the commodities have changed. An increase in the inflation rates indicates that the prices have gone up.

Why to beware of inflation?
There are many reasons. As the inflation increases, the value of the currency decreases. We thus have to spend more for the same amount which we bought at lower prices few months ago.

This is also because as the prices increase the cost of living also increase. This also affects the amount that we spend on our lifestyle. An increase in inflation is associated with an increase in the income of the citizens.

As the income increase the amount that we spend on our lifestyle and living also increase in the same proportion. More dollars in our hand make us to reach out to more of the luxuries. This increases the amount that we spend on our lifestyle. And thus the inflation effect is seen on our lifestyles as well. We spend more on our living and this in turn increase the cost of living.

When we retire the source of income we are left with is the pensions and the annuity income from different plans. Medical bills form the main part of our cost of living. This is because as the prices increase over the years the medical costs also increases. Once the annuities are used up there is no other way but to reduce the purchases so as to support the living. This is because the social security income is able to support only forty percent of the cost of living. Remaining sixty percent has to be arranged from somewhere else. This brings down the standard of living.

Inflation like termites slowly eats your savings. It reduces the return on your investments. Say for example you have invested in a fixed interest security that will give you a return of five percent next year. The rate of inflation is say four percent. Then by the next year you will actually get a return of one percent. This is because by next year cost would have increased by four percent and the return that your investments give you is five percent.

So, does that mean you should not invest in fixed income securities?
You should invest in fixed income securities. Fixed interest securities ensure that yes; you will get a certain amount of return no matter what happens in the market. But make sure that you have other securities as well. Insurance plans, bonds, stocks, mutual funds and commodities are different types which you can include in your portfolio.

Beware of the rising inflation rates but don’t panic. Act wisely. Calculate your risk taking capacity and chalk out an investment strategy. Small, well monitored and smart investments will help you out of the situation. Consult your financial advisor for more help.

Tags: beware of inflation, Current Inflation Rate, rising inflation rates