A Guide to the Best Investment in Case of Rising Prices
The issue of high inflation was not addressed in the recent guides on the best investment for 2025, where to invest in 2025, and the concluding 2025 investments, written and published at the end of last year. At that time, U.S. inflation seemed to be under control and increasingly close to the 2% target, which the FED considers an optimal inflation level: sufficient to avoid delaying purchases (as happens in the case of deflation) and not so high as to impoverish families and businesses (as happens with high inflation).
On the other hand, in How to Invest 100,000 dollars and the subsequent guide on Real Estate Investments, the topic of high inflation was introduced, as the situation was changing. In this new guide, we aim to explore the topic in depth and show how high inflation can actually be an advantage for the savvy investor. An advantage, provided one knows how to distinguish the best investment among stocks and bonds, funds and ETFs, Bitcoin and cryptocurrencies, gold and safe-haven assets, commodities, and income-generating real estate in a scenario characterized by high inflation, such as the one that seems likely on the horizon.
What is Inflation
Inflation is the phenomenon where, over time, the prices of goods and services tend to increase. This means that with the same amount of money, you can buy less than in the past. For example, if today with 50 dollars you can make a certain purchase at the supermarket, but a year from now that same shopping cart costs 60 dollars, a 20% inflation has occurred, which is quite high. In other words, due to inflation, the purchasing power of money decreases, and everyday life becomes more expensive.
Inflation can have various causes. Sometimes it is the result of strong demand for goods and services (good inflation): when people have more money to spend, businesses raise prices because they know consumers will continue to buy. This happened worldwide, especially in the United States, when pandemic restrictions were eased. Other times, inflation is caused by external factors, such as rising raw material or energy costs (imported inflation), which forces businesses to raise prices to cover expenses. This happened in Europe due to the Russian inflation from the Ukraine conflict, starting with the cost of gas.
If a moderate level of inflation can be positive for the economy, as it stimulates growth and investments, when it rises too much, it risks reducing people’s purchasing power, making it difficult to cope with daily expenses, and compromising the profitability of businesses (high or bad inflation).
Why the Investor Today Must Pay Close Attention to Inflation
While in Europe inflation is, slowly and not without stop-and-go, approaching 2%, and the ECB is gradually lowering interest rates, which should stabilize around 2.25%, the FED is much more cautious due to high inflation. Even in Latin America, with the exception of Argentina and Venezuela, inflation continues to decrease, but the situation in the United States is quite different: demand-driven inflation (good inflation) has risen back to 3%, partly due to recent wage increases and, above all, the first actions and even more so the announcements from Donald Trump raise some concern.
The tariffs – partly implemented and partly announced – towards Mexico, Canada, China, and Europe will inevitably lead to an increase in average prices for U.S. consumers, who will face prices up to 25% higher on imported products and even on those considered “domestic.” Just think of the automotive sector, where even a car designed and built in the U.S. and sold by an American brand, due to global value chains, has many imported components that will be subject to tariffs. It is estimated to range from +$4,000 to +$12,000 on models from the major manufacturers, namely General Motors, Ford, and Chrysler.
Furthermore, the new U.S. President has announced a tough stance on illegal immigration and restrictions on legal immigration, which will inevitably reduce the supply of foreign labor. Since unemployment is already quite low (around 4%), it is unlikely that we will see an increase in employment among U.S. citizens. It is much more likely that available workers, being more in demand, will ask for higher wages or switch companies to find them, and employers will pass these costs on to customers, raising the prices of goods and services, thus generating further high inflation.
Moreover, to protect U.S. companies from counter-tariffs imposed by Mexico, Canada, China, and Europe, Trump may introduce subsidies or other forms of state aid, just as his predecessor Biden did with the Inflation Reduction Act, which aimed to encourage businesses worldwide to invest and produce in the United States. The result? More high inflation, in addition to an additional burden on federal coffers.
The Most Likely Consequences of High Inflation
Due to the highly liquid characteristics of the U.S. labor market and high employment rates, inflation will most likely fuel a wage-price spiral, with wage increases leading to more high inflation.
And with inflation rising again, the FED will not be able to cut its rates (currently at 4.5%) and may even be forced to raise them. This would lead to a definitive decoupling between the FED and the ECB, with the dollar appreciating more and more against the European currency (partially sterilizing the effect of tariffs and intensifying the effect of counter-tariffs).
The freezing or rise in FED rates will make mortgages unaffordable for many U.S. citizens, denying them the ability to purchase property and creating further pressure on the rental market, thus generating more high inflation.
Which Investments Benefit from High Inflation and Other Aspects of the Currently Likely Scenario
Stocks and bonds, funds and ETFs, Bitcoin and cryptocurrencies, gold and safe-haven assets, commodities, and income-generating real estate behave differently in a scenario like the one that seems most likely, barring sudden changes.
Stocks, Equity Funds, and Equity ETFs
The honeymoon between Wall Street and the new presidency already seems to be over. Tariffs have spooked the markets, and the world’s financial hub has wiped out all of its 2025 gains in recent weeks. At the end of a February that turned out to be the worst since last April, the American stock market – which has become more concentrated than ever in a few huge companies, and thus more fragile – has returned to the levels of the beginning of the year. Meanwhile, major European stock markets have grown by double digits during the same period: +16% in Madrid, +15% in Frankfurt, +12% in Milan, and +10% in Paris. But history teaches us that, in the medium term, it is more likely that losses from New York will spread to markets around the world, rather than investors changing their financial strategies and rediscovering the Old Continent or small-cap stocks.
Bonds, Bond Funds, and Bond ETFs
The combination of the risk of further public debt for U.S. finances and the FED’s rates not decreasing has an effect not only on U.S. Treasuries but on the entire bond sector. A tariff and counter-tariff war worries countries that might be called upon to compensate businesses in some way for the effects of this de-globalization. Evidence of this is that even in Europe, yields on government bonds have risen (and their values have proportionally fallen) despite the ECB rate cuts.
Bitcoin and Cryptocurrencies
After the celebrations for the victory of the Tycoon, which pushed Bitcoin over $100,000, the cryptocurrency sector does not seem to be fulfilling its function as a “store of value” that its most enthusiastic supporters attribute to it. In a scenario of significant inflation, which could still rise, one would expect an increase in value. Instead, since the peak on December 17th (Bitcoin at $106,490), it has lost about 20% of its value. Likely, the sector has not benefited from the launch of the Trump Coin, which has lost more than 80% of its value since its highs on January 19th.
Gold and Safe-Haven Assets
Gold, however, has correctly fulfilled the role of a “store of value,” reaching new highs with every new announcement (or threat) of tariffs, after a record-setting 2024 fueled by ongoing conflicts and geopolitical uncertainties. Recently, the yellow metal came close to $3,000 per ounce, only to slightly retrace, but if things go as they seem inevitable at the moment, this psychological threshold is likely to be broken. The same effect can be projected onto other safe-haven assets, although markets for luxury watches, fine wines, diamonds, and artwork are less liquid and efficient.
Commodities
The commodities market is characterized by divergent dynamics due to seasonality and weather, supply and demand relationships that are sometimes very rigid, speculation due to futures, and geopolitical scenarios. Certainly, the entire sector will not benefit from the dynamics of tariffs and counter-tariffs, although values could rise a bit, incorporating the increase in the dollar that affects the cost of oil, which in turn affects fuel costs, and consequently the transportation of commodities.
Investment Real Estate and High Inflation
What we have recently referred to as “winning real estate investments,” namely U.S. income-generating properties, homes bought in the U.S. not for living in but for renting to working families, benefit from high inflation in three distinct and interconnected ways:
• At the time of purchase, since property prices are kept in check by the absence of all those U.S. families who cannot afford high mortgages due to the FED’s interest rates.
• In renting the property, which, due to the wage-price spiral, can be renewed (usually annually) at ever-higher prices.
• In resale, with the value of the property potentially registering significant increases over a few years, thus increasing the capital gain.
Additionally, if the investor is foreign, both values—the rental value and the property value at the time of resale—will benefit from the dollar’s appreciation, due to higher interest rates in the rest of the world.
Leverage High Inflation for Your Investments with Opisas
If you wish to take advantage of high inflation, the current economic situation, and the information you’ve gained from this guide, you can make real estate investments that already yield between 6% and 8% from rents, in addition to the capital gain at the time of resale. Write to contact@opisas.comand schedule an appointment with a consultant who speaks your language.
