The rising cost of living and the return of inflation is hitting Kiwis hard. In a new Herald series, Inflation Nation, we explore the reasons and impacts of the price shock - and possible solutions. We also share some great life hacks on how you can save money and live more affordably.
Inflation steals from savers - those with money in the bank and term deposits - while rewarding those who invest in growth assets like property and shares.
That's how financial author Martin Hawes sees it.
"Interest investors get hammered when it comes to inflation.
"In fact, they have already been hammered. They continue to be hammered, quite often without knowing it."
Even while inflation was low last year, term-deposit investors have been getting interest at less than the rate of inflation. Now that inflation has spiked to 5.9 per cent, the gap has opened substantially.
Hawes reckons those just rolling over term deposits will have already lost about 5 to 7 per cent in spending power over the past year alone.
"Inflation does that - it doesn't telegraph its destructive power. It does it very quietly, like rust."
He believes investing in property and shares are the key to beating inflation, although not all property or listed companies are equal and investors may need patience to see out the current volatility in share markets.
Hawes said listed property didn't go up directly with inflation. In fact, it had taken a fall over the past month or two. That was because most listed property companies also had some debt and with interest rates going up they were being hit by rising costs.
"But over the longer term you would expect property to correlate with inflation because the replacement cost of property rises and many leases have CPI [consumer price index] clauses, and they are getting reviewed every 12 months."
But residential property investment was a tougher prospect at the moment.
"You have got sentiment and a Government determined to at least flatten off property prices, if not reduce the price of property. And you have got supply starting to meet demand, certainly in some markets, so I would be very careful."
Residential property investors also face the reduction in the ability to offset their mortgage interest against their expenses over the coming years as well as the bright-line test.
Hawes said he was much keener on listed property and commercial property because it was not a political football.
Outside of property, he said shares were also a good option - but warned investors to be selective, focusing on companies that had real assets and the ability to pass price rises on.
"Commodities have always done well in inflationary times - BHP and mining companies generally. Banks, supermarkets, fuel companies have that pricing power - they are passing on the costs while they clip the ticket."
Health care and renewable energy companies were also good options.
He said investors should avoid startups that didn't have an income or any real assets.
"Tech companies on the whole - they would be ones to be wary of."
Financial adviser Tim Fairbrother said bonds were not a great investment in times of high inflation.
"You can get inflation-linked bonds, which some fund managers do use, but when they are at 1 per cent they are not such a good return. You need to be forward-thinking and getting into those things before inflation hits as opposed to after."
Fairbrother said in the past gold has been a good hedge for inflation. He said his team put a small proportion of gold investments into people's portfolios about 18 months ago.
He said that when there was higher inflation it usually meant an increase in interest rates, which usually means there will be a recession on the other side of that.
"Higher interest rates mean that people will have less disposable income, and therefore they spend less and the economy slows down and therefore interest rates can come down again because inflation has dropped back.
"So putting gold into the portfolio, it is seen as a flight-to-safety asset. So when a recession comes and share earnings fall, that means gold usually increases in value."
He said that had happened about 70 per cent of the time in the past 20 to 30 years.
"It doesn't always work."
Fairbrother said newer types of investments, such as cryptocurrency, didn't have enough trading history for investors to know how they might perform during times of inflation.
"Cryptocurrency may perform in a similar way to gold in the past but it is a bit of an unknown at this point. You don't have a dividend yield - there's no return on your money. You are not getting any revenue, you are just buying it as a capital gain."
He said so far few investors were worried about inflation.
"The stock markets falling 15 per cent has probably been a bit more of a worry for them in recent times. But I think as the year goes on that is certainly going to be a bit more of a worry."
He said most clients who were already retired and had lump sums of money invested would just look through the inflation spike.
And he cautioned retirees against taking on more risk to counter rising costs.
"People need to think about the long term rather than the short term."
Over the longer term, KiwiSaver funds tend to beat inflation because they have at least some portion invested in shares and property.
Fairbrother said it was important investors took a long-term approach when it came to KiwiSaver.
"Times like this, when interest rates are increasing, inflation high, sharemarkets volatile - you can't react to those things once you are in those moments.
"When things are good, those are the times when you need to reassess; am I in the right fund? How old am I? Am I retiring soon?"
He said those in a conservative fund saving for the long term would effectively see the value of their money go backwards with high inflation.
Tom Hartmann, personal finance lead at Sorted, said one of the goals of investing in general was to stay ahead of inflation, especially over the long term.
"We really need to take into account the effects of inflation."
He said people had now risk and later risk and later risk was that savings or capital erodes because of inflation.
"The choices we need to make in terms of risk level need to take that into account."
He said if people stayed too conservative over a longer period of time that could mean their investment rolled backwards because of inflation and taxes.
"You have to take all those things into account with potential returns to make sure you stay on track for your future lifestyle."
The now risk was if you needed the money in the shorter term for buying a home or retirement and it wasn't there because of volatility in the markets.
"It is really about the time horizon."
'Debt becomes more like a rent payment that people get so used to paying.'