Currency devaluation and salary: How to keep what you’ve earned?

[zebrafx]

There are two factors that will always influence the value of the money you earn: first factor is inflation and the second one is devaluation of the currency that you receive as an income and/or use for storing your funds. This article will explain value, but also how to get profit from available funds in case of currency devaluation.

Let’s analyse the risks of salary value depreciation given the example of Russian ruble as a devaluating currency.

The first half-year economic results left no trace of the optimistic mood previously demonstrated by the Russian authorities. Starting in late 2013, economic stagnation has led to a drastic GDP growth slowdown – down to 0.1%, while current forecast does not exceed 0.4% – 0.6% in the year of 2014. Escalation of crisis in Ukraine has led to widening the range of sanctions imposed by the EU and the U.S. targeting the main profitable sectors of Russia’s economy (financial and commodities). At the same time, there has been also a sharp contraction in Russia’s economy growth: car sales plummeted by nearly 30%, retailers reported sharp decline in sales varying from 20 to 35% (depending on the price segment), while situation on the real estate market also suggests upcoming sharp drop in housing prices.

Devaluation sentiments concerning Russian ruble have intensified after the Malaysia Airlines Boeing crash, driving the USD/RUB to 37-38 rubles range expected by the end of 2014. Due to rising costs of imported goods and overall investors’ expectations being negative in regards to Russian assets, it is very likely that by the end of 2014 the prices will increase on average by 8.0% – 8.5%.

The risk of stagflation (simultaneous rise in inflation rate and unemployment accompanied by slowdown in economic growth) will trigger the need for necessary annual indexation of salaries and pensions in the public sector. For private sector, the option to fire employees is more likely than keeping salaries at current relatively high levels.

According to our estimations, each one thousand rubles that you’ve been having in your wallet since January 2014 has already depreciated in value by at least 15% and will continue depreciating further. It would be extremely difficult to find a passive way out of this situation as there are currently no visible growth directions for the Russian economy. The only remaining option is investing in various assets on the global financial markets. A simple but effective option is investing in gold. Given the ongoing geopolitical tensions in the world, as well as a possible large-scale stock market correction, gold appears to be the most profitable instrument for short-term investment in the nearest 3-6 months. Buying gold at current rate of $1300 per 1 ounce and expecting the target level of 1400-1450 USD per oz. would not only save you money but also will provide you the possibility to earn an average profit of 10% to 40% while having a conservative risk.

We wish you a profitable investment!