High inflation is forcing families to resort to savings made during the pandemic to cope with the increases in spending they experience on a daily basis with utility bills or at the grocery store. After reaching maxima in 2021 (14.3%), the Portuguese savings rate fell to the minima of 2017 (5.90%) in the second quarter of this year. A trend that should continue for the foreseeable future, according to experts consulted by Dinheiro Vivo, who advise diversifying investments in order to limit the loss of purchasing power.
The rise in the cost of living and in credit terms, as a result of the rise in interest rates, is “reversing the trend” of savings, explains the coordinator of Deco’s Financial Protection Office. Natalia Nunes explained that “families are now increasing their spending, a fact that has contributed to a reduction in the savings rate”. More: “They are even using some of the savings made during the pandemic to cope with the surge in spending,” he lamented.
In turn, Sérgio Ruivinho, administrator of SGF-Sociedade Gestora de Fundos de Pensões, noted that the reduction in savings in the post-pandemic period was already “expected”, taking into account that part was due to “mere postponement of consumption”. However, he points out that “the impact of the rise in the cost of living is inevitably forcing many families to save less or use their savings to maintain their lifestyle”.
An opinion similar to that of Filipe Garcia. The president and economist of the IMF-Informação de Mercados Financeiros recalls that in the first place there was a normalization of the situation: “Some support disappeared, families were able to consume again and even took advantage of the “surplus” of savings to increase their consumption. Therefore, the first phase of the decline in the savings rate made perfect sense”. As for the most recent and ongoing decline, he points out that it is linked to the rise in inflation, which reached a record high of 10.2% in October, as the National Institute of Statistics announced last Friday.
What to do with savings?
For those who manage to maintain some savings capacity, the big question is how to make this money. Deposits remain the main application of Portuguese savings, although the number of subscriptions to Savings Certificates is increasing due to the increase in Euribor rates. As Filipe Garcia underlined, “they are the best ‘risk free’ application product at this stage”. That explains the increase of 700 million euros in new subscriptions in September, reports the IGCP, the Department of Finance and Public Debt.
By contrast, according to the Bank of Portugal, bank deposits have started to slow down somewhat since July. In September they totaled EUR 181 billion, a slight decrease from the previous month – which coincides with the holiday season, when spending is usually higher – but still 7% more than in the same period a year ago.
“Lots of Money” [das famílias] is deposited into current accounts, because the fee for term deposits is almost identical to the rate for current accounts,” emphasized Natalia Nunes.
Portuguese investors tend to remain too conservative and prefer assets with guaranteed (nominal) capital, according to the SGF director. “This type of investment is particularly vulnerable and negatively sensitive to a high inflation environment,” says Sérgio Ruivinho.
But with inflation making it very difficult to really make a profit from financial investments, what tools and strategies can families use to mitigate the loss of purchasing power? “It is essential to look for applications with a return that is higher than inflation. Only in this way can the family guarantee an appreciation of the applications in the long term,” says the head of the Consumers’ Association.
However, he warns: “Before subscribing to a financial product, a market survey must be carried out, checking the various offers of the various financial institutions. Analyzing the characteristics of the applications and retrieving all the information about them is essential. “
diversify applications
Sérgio Ruivinho recommends opting for diversified strategies, backed by assets that in the past have “proven to be resilient and have even benefited from these periods of high inflation (such as the 1970s and 1980s)”. And he explains: “We are talking, for example, about commodities, precious metals, inflation-indexed bonds and stocks of companies that, due to their position in the market, have a strong ability to pass on the higher costs to their customers/consumers (companies with price power)”.
The IMF economist, on the other hand, believes that “every case is different”. But according to him, “the most efficient alternatives have been the application of savings in paying off debt, the purchase of necessary durable goods that tend to become more expensive and investments that do not take place in the financial markets, although these should be considered given the pronounced corrections observed in the meantime,” he concluded.
Sara Ribeiro is a journalist for Dinheiro Vivo
Source: DN
