Have you ever seen how a hungry predator devours its prey? We all know the level of voracity and gluttony with which it occurs. When we talk of our money, the hungry predator of our time is inflation. And it’s showing up again, this time hungrier than ever before. At the time of this blog, inflation is now becoming a global problem.
Canada, the US, and Great Britain’s inflation have now reached a peak, the likes of which it never crossed in the past three to four decades. The record doesn’t stop with them; other countries around the world are also facing the money predator called inflation. In fact, it has led to crises and protests of devastated citizens in some of these countries. A good example is the inflation protest in Argentina and Sri Lanka.
What’s this inflation, where is it coming from, how come we don’t spot it upfront, and what effect is it having on our financial life, especially the stock market? You will be able to answer these questions after reading this blog till the end.
We describe inflation as a hungry predator because when it arrives, it eats up your money, leaving you with less than you should have without any reduction in number. This is what we mean; imagine you have a hundred dollars and this can buy you five T-shirts all at 20 dollars each. When inflation strikes and the cost of shoes and shirts climb to 25 dollars, the same hundred dollars you have can now only buy you four T-shirts. Without any reduction in amount, you now have 20 dollars less than you do have before inflation.
Inflation always has an unfriendly effect on the stock market. The rise of prices in the product market leads to nothing but a fall in stock price. When commodities set on the journey of inflation, companies will spend more to secure production and distribution and eventually, the profit record will begin to fall. This retardation in performance draws its mark on the stock value in the stock market. Recently, Nasdaq, Sensex, Nikkei, Dax, and FTSE experienced falls of 4.7, 2.6, 1.9, 1.8 and 2.3 per cent, respectively. These are but a few examples to buttress our explanation. And a day like this is another torrid time for the US stock in two years. The constant rise in the price of products also leaves investors with less to invest, and thus, low demand in the stock market will negatively affect stock prices.
Did we see this coming, or did it take us by surprise? There is no absolute answer, but at the beginning of 2022, the price of crude oil, phosphate, wheat and soybeans rose significantly in comparison to the record they set in 2021. We should have known from here that inflation was already on the surge before the Russia-Ukraine war and the recent China Shanghai lockdown added fuel to the fire. The inflation was actually coming from the pandemic that hit the world.
During the period of the coronavirus pandemic, everyone was on lockdown, and consumer spending went below the line. Now that everything’s back to normal and spending is now kicking in, the market demand continues to rise since people have the money to pay. Now, the problem is that the producers have done little in the past year to expand their capacity. So, the supply is not enough to meet the demand. And in simple economics, the price of products will continue to rise as the supply cannot cater for the level of demand.
Although the government and central financial institutions are late to take action, there is hope for better days as they are now taking responsibility and working on ways to solve the problem. On another side, the war is creating a great obstacle to progress. Wheat and oil come majorly from the two countries at war. What that means is that famine and food insecurity will take their toll if the war refuses to end. Soon, we’ll have to start fighting against famine and hunger. This problem was recently addressed by the United Nation. They are working on the resumption of food exports from Ukraine. That’s good news we hope could relieve the problem.
In conclusion,
There are many factors that contribute to inflation. We can control some of it while others are beyond our speculation. Whichever way it comes, it’s important to prepare ahead so that you will be the last prey of inflation predation. That’s the best way to stay safe. With the development and plans going on presently, things might get better, and the result will tell on the stock market. For every right, there is always left. You need to always be aware to stay on top of financial crises and sail your boat out of every sinking ferry. When you do that, you will have a fulfilling financial life.
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Recommended books for further reading:
- Stock Market Investing For Beginners: The Investment Guide – How to benefit from the crisis, invest in stocks and generate long-term passive income incl. ETF and Stock Picking Checklist
- The Stock Market Investing Guide #2020: From Beginner to Intelligent Investor within 30 Days – How to Save Money, Generate Passive Income and Reach Financial Freedom
- The Financial Times Guide to Investing:The Definitive Companion to Investment and the Financial Markets: The Definitive Companion to Investment and the Financial Markets
- The Barefoot Investor: The Only Money Guide You’ll Ever Need
- Investing QuickStart Guide: The Simplified Beginner’s Guide to Successfully Navigating the Stock Market, Growing Your Wealth & Creating a Secure Financial Future
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