Who forgot about moments of their past? Remember when everything in life was less expensive? And even though there were also some bad situations, the fact remains that commodity prices were lower. The cost of living was lower. Amongst other things, inflation has been a decisive factor in price formation.
Inflation impacts every aspect of our economy. This includes consumer spending, business investment, employment rates, government programs, tax policies and interest rates.
As inflation has increased recently, after several years of relative stability, at its highest level in four decades (Inflation rose to 9.1% in June, its highest level in over 40 years), investors should be aware of the factors behind inflation. Clearly, this has an impact on their portfolios and significant steps must be taken to maximise their potential.
Is too much inflation a bad thing?
Rising inflation discourages saving overall. Nobody would want to save money if it dropped in value. To control inflation when it gets too high, governments implement expenditure reduction policies or expenditure increase policies. This can vary according to the implementation of a specific policy with a clear purpose.
Looking to get started with trading? Experience more than 160 top-trending CFDs in Stocks, Forex, Indices, Commodities, and Cryptocurrency Futures on XPro Markets!
What happens when inflation rises sufficiently?
Last June, research based on the West End top theatre ticket prices had come to my attention. The results were clear: West End's top ticket prices have increased 21% since before the pandemic, and that's what inflation is all about! What does it mean? Going out now is far more expensive - These days it all seems more expensive.
Prices for meat, fruit, vegetables, electricity, gas, airfare, household goods, and rents have gone up! The reasons for the rise in prices can be manifold, which ultimately translate into high inflation.
Why? Too much inflation, as has already been mentioned, is bad, especially when it comes to the cost of living and rising inflation discourages saving overall. As a consequence, consumers are spending more than they are going to save. More spending leads to more demand and since supply is small, higher demand means higher prices!
What's behind the shortage
Low supply in general, coupled with strong demand and high inflation, has led to price hikes around the world. The most important reasons for low supply may lie in the following:
- Covid-19 pandemic.
- The accuracy of raw materials hampers production and market development.
- The war in Ukraine and the country's sanctions against Russia have resulted in shortages of goods.
- Climate change, one of the biggest problems in the world, puts a brake on products that do not meet certain requirements.
Tired of how things turned out? Trade the Trend at XPro Markets and make a difference!
Indeed, everything above has affected and greatly influenced our daily routines. We have gone through unprecedented situations that add to the feeling of uncertainty. Still, after the storm, comes the calm. How will inflation affect companies' profitability in the future, and how would you benefit from that?
XPro Markets - Read more about inflation and find out why inflation matters to traders here.
Risk Warning: Contracts for Difference (‘CFDs’) are complex financial products, with speculative character, the trading of which involves significant risks of loss of capital.
Disclaimer: This material is considered a marketing communication and does not contain, and should not be construed as containing investing advice or a recommendation, or an offer of or solicitation for any transactions in financial instruments or a guarantee or a prediction of future performance. Past performance is not a guarantee of or prediction of future performance.
