What inflation means for you

 

June 16th, 2021

 

What is Inflation? Inflation is the rate at which the value of a currency falls and, as a result, the general prices for goods services rise. Inflation can be contrasted with deflation, which occurs when the purchasing power of money increases and prices decline. Inflation is seen as a negative thing because as prices rise, money buys fewer goods and services. This loss of purchasing power leads to a deceleration in economic growth. Inflation is commonly measured through either the consumer price index (CPI) or the wholesale price index (WPI). Inflation is also separated into three types: demand-pull inflation, cost-push inflation, and built-in inflation. Inflation in the news While we have seen prices for certain commodities fluctuate during the covid-19 pandemic, we are starting to hear more about inflation now that we are coming into the post-pandemic period. The CEO of JP Morgan has confirmed that they are saving cash, rather than using it to buy investments precisely because of the possibility that higher inflation will force the Federal Reserve to boost interest rates. What does inflation mean for investors? Inflation is usually regarded as a negative thing for a country's economy. Many people's cash holdings go down in value and they tend to buy less. People who hold tangible assets, like real estate investors, may see their asset values go up. However, it's unlikely that the investor will be able to profit much during this period. During this period, investors are usually advised to re-assess their finances and see what they can hold and what needs to be let go. Inflation isn't always a bad thing. Ideally, an optimum level of inflation is required to promote spending to a certain extent instead of saving, thereby nurturing economic growth.

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