What is inflation?
Inflation is the rate of increase in prices over a period. Inflation is a general term that mentions an increase in the price of goods and services in the country. A 100 rupee note today has almost the same value as a 1 rupee coin in 1958 If today you buy something worth 100 rupees, then it will cost 1 rupee in 1958. our money constantly loses value with time. Inflation is the increase in the cost of goods that affects all of us every year this is because of inflation.
What causes inflation to happen? is inflation Bad? how is inflation related to unemployment and other economic factors? Why does inflation happen? Who is causing this inflation? Or are some people sitting in the government increasing the prices of things by playing carelessly?
Rising Inflation Three Main Reasons :
1 Economic boom: If the economy is good, people will receive more stuff and spend their money on more things and the business or firm that produces it will raise the price of the product for profit. And a form of inflation will begin. It is called Demand-Pull Inflation.
2 Increases in prices of raw materials: Wheat and rice prices occasionally rise as a result of adverse weather or government taxes. As a result, the company that manufactures the product utilizing raw materials increases the price of the product to remain profitable. which would ultimately lead to inflation. this inflation is called cost-push inflation.
3 increase in employee salaries: Yes, it sounds strange, but when a company or business raises the wages of its employees, it must also raise the prices of its products in order to remain profitable. If the country’s unemployment rate is low, it will be tough for businesses to replace their employees and If they are not replaced, their salaries will have to be increased. it triggers inflation again. this inflation is “wage-push inflation”.
How Inflation Affects Stock Market
High Inflation Rate: The stock market is collapsing due to geopolitical concerns. Because, as you are all aware, there is a war between Ukraine and Russia, as well as a confrontation between Saudi Arabia and Iran. If a conflict broke out between two countries, why is inflation rising in India? Because of India’s crude oil dependency on these countries.
The price of crude oil has risen steadily since the start of geopolitical crises. The price of crude oil has now risen to 118 dollars per barrel. Despite Russia providing a crude oil discount to India, we have seen “record inflation” and this is because India imports crude oil, which has a direct impact on the Indian economy and having an impact on the economy means having an impact on the stock market.
Crude oil is the most important energy source on the planet and all the industries are directly and indirectly dependent on crude oil. As crude oil prices rise, all industries’ production costs rise, resulting in price hikes for goods and services. in simple language, inflation will rise, and the stock market will suffer as a result. Because inflation is rising, investors are turning to safer investments such as gold and other commodities rather than the stock market as a result, the stock market is collapsing.
Omega Financial’s View on current Conditions
Researchers at Omega Financial are of the opinion that the market is presenting a great opportunity to the investors as various scripts are present in the market at an attractive valuation, but that is the view for fresh buying. What if you are already invested and losing money in this bear market?
Always, for such conditions, we always advise investors to start rebalancing their portfolio and to average out if they have cash in hand. as discussed in the previous blog, if you take care of asset allocation. You might not face major panic. Investors should remain calm and invest in companies with good fundamentals.
Omega Financial is a Financial Service Company in Bhilai. We cater for India. We have served more than 3500+ clients. We are a one-stop solution for all of your financial needs. We offer best performing mutual funds, Health Insurance and Life Insurance, Portfolio Management services, and Retirement planning.
Stay Tuned for the next blog of Fincon by Omega Financial.
