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December 13, 2007 3:41 AM

How do I, alone, financially cope with high inflation and an overheated economy?

I live in Latvia, where inflation this year was over 13% and GDP grew 11%. Here's an article from this week with more info on the economy here, which might prove useful to answerers.

I make a good-enough-for-now local wage, and I have a free apartment thanks to my job, but the prices of things keep going up while my monthly salary is static. I have no pension, investments, or huge savings to worry about - just my monthly paychecks in a current/checking account. I also have a checking account with a credit union back in the US, where I'm from.

Food costs, for example, have risen about 20% this year, which is a pretty significant increase. Riding the bus, which I rely on to get to work, will increase in price by 25% on January 1. Anything imported - which in a country this size is everything from razor blades to blenders to socks - costs the earth.

So, what can I do to lessen the impact personally? I've already been doing small things, like shopping at local markets to avoid the high prices for imported vegetables, for example. Do I stock up on commodities like dry goods now and prepare a survivalist bunker? Do I change my bank account denomination to euros instead of Latvian lats in case there's a devaluation? Spend less? Spend more?

Thanks.

posted by mdonley to Work & Money (8 answers total)

IANAFinancialAdvisor.

Gold is the traditional inflation hedge, it tends to keep its value even in the face of strong inflation. Of course you might be able to invest some in the local stock markets and take advantage off the GDP growth. That'll expose you to the risk of the bubble popping of course, but if you've got other options (including coming back to the states) it might be worth it in the meantime.
posted by Skorgu at 4:25 AM on December 13, 2007

* Establish your self in the barter economy
* Use your yank connections to 'import' luxuries
* Profit!?!
posted by zemblamatic at 4:28 AM on December 13, 2007

- Keep any cash balances "off-shore" (ie in dollars, euros, pounds or Swiss francs).
- Buy lots of things that you can store.
- Keep low quantities of domestic paper money and some foreign currency.
- Check out the cost of going to another EU country to stock up on expensive items.
posted by TrashyRambo at 5:00 AM on December 13, 2007

To disagree with Skorgu, gold is a bad idea. It is both speculative and not an effective hedge in smaller economies.

The key issue is that the Lat is likely to be devalued soon (it is pegged against the Euro). Put your money in Euros or dollars, and you may find yourself in good shape when the currency corrects, although there may be some economic issues in Latvia as a result
posted by blahblahblah at 5:51 AM on December 13, 2007

Put your money in Euros, since the dolllar isn't doing so well either. Also, if you have the option of being paid in dollars or euros, choose that option. Wire any extra money you have to your U.S. account. Any remaining local currency you have, use to stock up on dry goods. But ultimately, just think of it as a pay cut, and tighten your spending--eat in, shop at less expensive stores, fewer trips, etc. But seriously, I know 13% inflations sounds really bad, but that's close to what the US inflation was during the Reagon/Bush days in the early 80s. If you have older family members who lived through that, ask them what they did to tighten their belt. You're lucky (as you note) in that you don't have to sit and watch your savings actually decrease in value.
Good luck!
posted by peachy at 7:06 AM on December 13, 2007 [1 favorite]

My (American) brother lived in Brazil in the 80s, during a period of high inflation. His brazilian friends bought stuff which they could later sell. They bought things like cars and washing machines, which they warehoused unopened. The things kept their value better than the currency. (I don't know the name of the Brazilian currency - milreis maybe?)

This is irrelevant, but if you read Jorge Amado's books, the early characters buy rum with reis, and the later characters buy it with contos-de-reis and even later with milreis. I suspected that contos-de-reis were hundred reis and that milreis were thousand reis. That means to me that over the course of Amado's fictional world the fictional currency was devalued by a factor of 1000. I'm only writing this by memory, which has never served me well to date, so I may be completely wrong.
posted by vilcxjo_BLANKA at 7:17 AM on December 13, 2007

Can you buy and store canned food now? Not quite as good as fresh, but they store well so are a hedge against rising food costs.

Same thing goes for other things you can store that you will use later. Think of it as buying at a discount. The more of your disposable income that you can divert to buying things now before the price goes up, the better. It's better than many savings, because the value increases at the rate of inflation.

You can also can things yourself if you'd like.
posted by Pants! at 9:22 AM on December 13, 2007

IF you have a stable job, buying things, especially things that hold their value like property, on credit in the local currency may be a good proposition.

When we had galloping inflation in my country over the late 70s my parents plugged away at their mortgage. Their wages inflated along with everything else and the mortgage got relatively smaller.

If your salary is static, then you are doomed. But you can stave off doomsday by immediately converting it into a more stable form as soon as you receive it, eg foreign currency or bulk staple food.

The worst thing you can do with it is save it in the local currency.
posted by i_am_joe's_spleen at 11:12 AM on December 13, 2007