top of page

Understanding Inflation: What It Is and How It Affects Your Money

Richard Kinyua

The term inflation written on a chalkboard and an arrow facing upwards showing rising inflation
Rising Inflation

When it comes to serious and informed investing, financial planning is necessary and inflation is one area that cannot be avoided. With time passing, prices go up, and the purchasing power of the Kenya Shilling is down. Understanding the effect of inflation on your future objectives and financial decisions needs further consideration. Despite the temptation to write off inflation rates as something one cannot control, increasing your understanding can help inform your risk management choices and better back your long-term objectives. 


What is Inflation?

With the growth of an economy, businesses and consumers spend more money on goods and services. During the growth stage of an economic cycle, demand usually outnumbers the supply of goods resulting in producers raising their prices. The result is an increase in the rate of inflation. 


Inflation is the maintained increase in overall levels of prices. A moderate level of inflation is attributed to economic growth while a high inflation signals an overheated economy. According to the Central Bank of Kenya as of December 2024, the Consumer Price Index (CPI) sat at 3, an increase from 2.8 in November. The CPI is the most popular indicator of inflation in Kenya. It compares over time, the cost of a fixed basket of services and goods bought by the consumers including housing, food, and clothing. 


The inflation rate in a line graph for the months of 2024 in Kenya
2024 Kenya Inflation Data


When economic growth accelerates fast, demand increases even faster and producers increase prices continually. Constraints in supply can also drive prices more absent any changes in material demand. An increasing spiral in price is sometimes referred to as runway inflation or hyperinflation.

Inflation Rate in Kenya 2024


It is worth noting that the inflation rate in Kenya has been decreasing for the year 2024 from almost 75 in January to around 3 in December. 


Shows the impacts of inflation on different aspects of the economy including rising prices, reduced purchasing power, decrease in consumption and a depreciation.
The effects of Inflation


Inflation and Purchasing Power

To best understand this, let us consider you having a 20-year mortgage and you pay about Ksh. 50,000 every month towards the interest and principal. During the 20 years, the monthly payment could grow due to a potential rise in property taxes while the principal and interest remain stable. The result is the final Ksh. 50,000 payments will be considerably less in relative value compared to the first payment when inflation is accounted for. This argument is the reason economists look at real estate investments as long-term strategies to hedge against inflation.


A lady smiling after a shopping spree indicating a low inflation and greater purchasing power.


Impact of Inflation on Investment Returns

Inflation does pose a serious threat to investors since it chips away at real savings and returns in investments. A majority of investors are focused on increasing their long-term purchasing power. With inflation, this goal is at risk since returns on investments must first keep up with the rate of inflation in order to raise the real purchasing power. For instance, an investment that brings back 2% prior to inflation in a 3% inflation environment will result in a negative return on investment upon adjusting for inflation. 


Additionally, variations in the rate of inflation can have a different effect on different asset classes. For instance, historically, nominal and stock fixed income has shown a negative reaction to upside surprises in inflation. The outcome is a positive stock during times of increased inflation and challenges to traditional diversification. 


What does it Mean as an Investor?

High inflation often leads to a negative impact on assets including bonds and stocks. Having a constant allocation to inflation-hedging assets can assist investors cushion their portfolios against surprise spikes. A few examples of inflation-hedging assets include:

  • Gold. For the longest time, Gold has been regarded as a hedge against inflation with many even considering gold as an alternative currency, especially in nations having currency value problems. Gold is a real physical asset and tends to hold its value for the majority of its part. Ndovu gives you the platform to invest and hedge yourself against inflation through the Gold Fund especially when looking to diversify your investments.

  • S&P 500. These are stocks that offer upside potential in the long term. It is worth noting that enterprises that gain from inflation are the ones needing little capital while those engaged in natural resources lose to inflation. Currently, the S&P 500 comprises a high concentration of technology businesses and communication services. If you wish to invest in the S&P 500, download the Ndovu app on Google Play and App Store and invest in stocks including Tesla, Meta, Amazon, etc.


In the midst of rising inflation and often changing conditions for investment, investors should consider inflation-mitigating assets and remember the primary principles of investing: keep a well-diversified portfolio, regularly balanced, and making sure investments remain aligned with long-term goals.


Disclosure:

Ndovu is a regulated Robo-advisory platform operated by Ndovu Wealth Limited (‘NWL’). NWL is a Fund Manager licensed by the Capital Markets Authority (Kenya).

The information provided on this platform and the products and services offered are intended solely for persons in regions and jurisdictions where such distribution and utilization are in accordance with local laws and regulations. Ndovu does not promote its services in regions where it lacks the necessary licenses; It is exclusively available to persons residing in countries where it holds a valid license or has regulated partners. Ndovu does not extend its services to citizens of the United States, Canada, Japan, and other restricted territories.


Disclaimer:

 All ETF products are subject to risk, including country/regional, liquidity, and currency risks. Market prices of securities within the ETF may rise and fall, sometimes rapidly and unpredictably.

While ETFs provide diversification through exposure to a basket of securities, they do not eliminate the risk of loss. Diversification does not ensure a profit or protect against a loss. These are non-cis products and are registered by the SEC.



Comments


Download our mobile app and start investing today.

© 2025

 · Ndovu · All Rights Reserved.

Download Ndovu app from Google play or play story
Download Ndovu app from the app store

​

 

 

Past performance is not reflective of future performance, and the price of units and the income may go down as well as up. In certain specified circumstances the right to redeem units may be suspended. The capital markets authority does not take responsibility for the financial soundness of the scheme or for the correctness of any statements made or opinions expressed in this regard.

​

Ndovu is a regulated roboadvisory platform owned and run by Ndovu Wealth Ltd (“Ndovu”). Ndovu is licensed by the Capital Markets Authority (Kenya) as a Fund Manager and is also regulated by the Institute of Certified Investment & Financial Analysts (ICIFA), the Communications Authority, and the Nairobi Securities Exchange. Ndovu is a registered trademark of Ndovu Wealth Ltd. Advisory services are provided by Ndovu Wealth Ltd, a CMA-registered investment adviser. US-traded securities are provided to Ndovu users by Interactive Brokers LLC. Interactive Brokers is a member of FINRA/SIPC, which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). Explanatory brochure available upon request or at www.sipc.org.

​

​Investment involves risk. The value of investments and the income from them can go up or down and you may not get back the amount originally invested. There is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives and Ndovu Wealth Ltd charges and expenses. Ndovu Wealth Ltd’s internet-based advisory services are designed to assist clients in achieving discrete financial goals. They are not intended to provide comprehensive tax advice or financial planning with respect to every aspect of a client’s financial situation and do not incorporate specific investments that clients hold elsewhere. Past performance does not guarantee future results, and the likelihood of investment outcomes are hypothetical in nature. Not an offer, solicitation of an offer, or advice to buy or sell securities in jurisdictions where Ndovu wealth Ltd is not registered.

​

By using this website, you accept our (Terms of Use) and (Privacy Policy) and (Data Protection Policy).​​​​​

bottom of page