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BLOGS - 16 March 2022

Inflation - back to economic fundamentals

Inflation erodes prosperity and wealth. And here we are again – New Zealand with CPI increases above 6% for the first time in 30 years.
How do we, as individuals and households, protect ourselves?
Save harder to maintain and grow wealth in real terms? Difficult for people on limited incomes, and costly to a national economy so dependent on consumer demand and spending.
Invest more in assets that are inherently inflation proof – real estate and businesses which are capable of passing on their cost increases?  Hard to get exactly right without lots of information, ready access to capital and good timing.
Under any course, rising inflation forces us all to thinker harder about economic fundamentals.
How to balance income and expenditure without loss of wellbeing and comfort.
How to identify shares that will increase in value as inflation puts pressure on company costs and earnings.  How to identify properties of real value as the Reserve Bank fights inflation with rising interest rates. 

First, understand

Success in influencing other people requires, first. that you understand and respect them.  Vladimir Putin is providing grotesque illustration of that principle in reverse – and Ukraine is paying a huge price (as will Russia eventually).
Western commentators talk of his “miscalculation”. What they mean is Putin’s seemingly complete failure to understand that Ukrainians value deeply their political and economic independence, and that they are a nation of fighters. He failed also to fully understand that invading Ukraine would risk severe global sanctions on Russia.
True, dictators generally don’t do “other-sidedness” – the concept in negotiation of one side deliberately informing itself on the other’s interests and perspectives. But in this escalating war (and its war crimes), Putin sets a new benchmark for stupidity among bully-boy dictators.
This all presumes that influence, not annihilation, was the real Russian goal in Ukraine – influence as in control of its government and rejection of any NATO membership. 
Had he understood Ukrainian and Western perspectives – surely possible – Putin would not have invaded.  He would have pursued strategies other than extreme military aggression. As things now stand, every Kyiv hospital or apartment block bombed destroys further Russia’s ability to influence any outcome, except  that of annihilation.
There’s another fundamental principle completely lost on Putin – this one about the stupidity of “preventive war” (started supposedly to enhance your own security). As  US President Harry Truman said in 1945: “There is nothing more foolish than to think that war can be stopped by war. You don’t prevent anything by war except peace.”

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