The RBA has hiked interest rates for 10 consecutive months to combat inflation. In this article we will discuss what is inflation and why it is so bad. What does inflation mean? The simple definition of inflation is the general rising of prices. This means the decrease of purchasing value for goods and services. For the average consumer it means there is less money in the household budget when inflation rises which leads to less funds for discretionary spending. Causes …

Read MoreWhy do we fear inflation?

Inflation is the rising price of goods and services. The increased cost of living essentially means you will need to spend more money when purchasing everyday items such as bread, milk, apples, petrol, etc. Cash would not be the best asset class to hold in a high inflationary environment because inflation is rising faster than the interest that you earn on your cash. Stocks would be a better choice. For many companies, their revenue and earnings should grow at the …

Read MoreWhat sectors to buy in high inflation

We have discussed what stocks do well in high inflation in our previous article, but in this one we discuss why share markets do not like inflation. Increased cost of raw materials for companies may cause expenses to increase. Companies will pass these increased costs to consumers making the product more expensive. The increase of price may mean less units are sold as demand is decreased.   If there is a general level of price increases of everything and there …

Read MoreWhy inflation is bad for markets?

Inflation is defined as the general increase of prices for goods and services. Governments may try and control inflation by increasing interest rates. Share markets do not like increases in interest rates as it can increase company loan repayments and hurt earnings. It can also discourage businesses from borrowing more money to expand. However, there are some sectors that perform well in high inflationary environments. Banks If inflation becomes high, an increase of interest rates will follow. Banks make most …

Read MoreStocks to buy in high inflation

Rising inflation causes alarm among investors. So far in 2021, the media has been saturated with talk of rising inflation as share markets have gyrated wildly. However, the truth is that inflation is necessary for a healthy economic environment. The RBA tries to maintain an inflation target of 2-3 per cent to keep the economy growing. In this article we discuss what inflation is and why it is necessary. What is inflation? Inflation is the general rising of prices. This …

Read MoreWhy inflation is necessary