A few years ago, when inflation skyrocketed in Europe and the United States, a term that many didn't understand started to become popular: deflactar. And what deflactar is, in reality, is simpler than it sounds, but its implications for your wallet are quite real.

Basically, deflactar means adjusting economic values to eliminate the effect of price changes. When inflation rises, nominal numbers deceive you. For example, if your salary increased from 30,000 to 33,000 euros in a year, it seems like you earned 10% more. But if inflation was 8%, your purchasing power actually decreased. That's where deflactar comes in: it allows you to see the reality without the noise of inflated prices.

Economists use deflactores to compare the actual performance of companies, countries, or families over time. It is the difference between nominal GDP and real GDP. A country that produced 10 million in goods in year one and 12 million in year two may seem to have grown 20%, but if prices increased by 10%, the real growth was only 10%. That is deflactar in action.

In Spain, during those years of high inflation, politicians debated a lot about deflactar the IRPF, which is basically adjusting income tax brackets so you don't lose purchasing power when your salary increases. That is, if you earn more nominal money but inflation erodes it, the idea is that you don't end up paying more taxes in real terms. Other countries like France, the United States, and Nordic countries already do this annually. Germany does it every two years. But in Spain, at the national level, it hasn't been applied since 2008.

Now, why should this matter to you if you invest? A lot. When there is high inflation and restrictive fiscal policies, your investments are affected in very different ways depending on the type of asset.

Let's take gold. Historically, when everything goes economically to hell, gold maintains or increases its value because it doesn't depend on any national currency. If interest rates rise and government bonds generate less real return after taxes, many investors turn to gold as an alternative. That said, in the short term, it can be very volatile.

Stocks are where things get more complicated. High inflation and high interest rates generally hit the stock market because they make money more expensive for companies and reduce your purchasing power. That’s what happened in 2022, where the tech sector plummeted while energy companies hit record highs. But here’s the paradox: during recessions, if you have liquidity and patience for the long term, low stock prices can be a huge opportunity. The market always recovers historically.

Forex is another game. High inflation tends to depreciate the local currency, which can make buying foreign currencies attractive. But beware, the currency market is highly volatile, and leverage can make you lose a lot quickly.

Diversification is your best friend in these scenarios. Mix stocks, commodities, bonds, real estate. Different assets respond differently to inflation and rate changes.

One important thing: if income tax is finally deflated, you would have more disposable income, which could boost demand for investments. But honestly, for the average person, tax savings are not spectacular; we're talking about hundreds of euros. So don’t expect this measure alone to revolutionize your investment capacity.

The key is to understand that deflactar is a concept that goes beyond taxes. It’s about seeing the economic reality without the disguise of inflation. And that, for anyone who invests, is essential for making smart decisions.