The Business of Inflation Arbitrage

Like with pretty much every other business opportunity you’ll ever come into contact with in your life, you need some kind of capital to get into the business of inflation arbitrage and not only that, but the more capital you have the more money you’re likely to make. This is perhaps why the phenomenon of the rich getting richer exists, but as another saying goes, “Start where you are, with what you have!”

Okay, so what exactly is inflation arbitrage?

Arbitrage – arbitrage is a hedged investment which is made with the intention of capitalizing on the slightest of differences in different markets, so when we bring inflation into the equation then it’s simply a matter of capitalizing on the differences in the effects of inflation in different markets. As you might have guessed then, since as the name suggests inflation arbitrage targets the effects of inflation, this would mean that we’re starting to play in the territory that pushes just a little bit beyond arbitrage.

How to get into the business of inflation arbitrage

Inflation arbitrage remains inflation arbitrage because of the cross-border measures put into place which effectively negate a large chunk of the gains one would have typically made by trading goods and services across borders to take advantage of the effects of the differences inflation makes. I mean if it was that easy, everybody would be doing it – if it was as easy as just stocking goods in a region with less duties and/or taxes and then seeking out markets where those same goods are more expensive to buy in order to sell them just a little cheaper than the indicative market price, everyone would be doing it.

Still, that is exactly what inflation arbitrage is and it remains arbitrage because the profit margins you make are really quite small. That’s why it becomes a matter of dealing with high volumes instead of trying to squeeze the biggest profit out of every single deal individually.

Now obviously some goods and/or services are better to sell than others if what you’re targeting is sales volumes, so you might perhaps want to go for selling digital products and services over physical goods that come with a whole host of other logistical issues attached to them. Some physical goods markets are just too hungry for the eager opportunity-seeking inflation arbitrageur to pass up on though, so they’re definitely worth exploring.

On the other hand, digital products and services can be sourced from those countries where a dollar stretches further, or rather the labour that goes into the creation of those digital products and services. So you might be in the business of flipping websites for example, in which case a good developer from a place like Thailand would be content with what would essentially be a service fee that a web developer in the United States could never settle for.

What inflation arbitrage ultimately comes down to though is being able to use the higher inflation of the destination country you want to sell your products or services in, which are sourced from a country where the inflation typically has those products and services being sold much cheaper.

Buy fragrance oils in Egypt for example and then sell them at just below market price in the USA…