The annual inflation rate in the euro zone fell to 1% in July this year and is at the lowest level since 2016, according to the latest data published by Eurostat. Where the fall in inflation would thus open the way for a new stimulus policy by the European Central Bank (ECB), which its president, Mario Draghi, already referred to in the preceding weeks. This is a new scenario that may affect equity markets from now on.
In a few weeks in which international equity indices are falling as a consequence of the more than real possibility of a recessionary scenario in the global economy. Discounting the valuations in the prices of the listed securities and in some cases with losses below 5%. At a time when there are already many small and medium investors who have decided to abandon these financial assets for safer ones.
Within this general context, the year-on-year inflation rate may give some clue as to where monetary policy may move in the coming months. Both on one side and the other of the Atlantic and where investors must be very aware of everything that happens in the decision-making bodies. In order to develop some type of investment strategy in which they can make their savings profitable with greater guarantees of success. Which is, after all, one of your priorities at this time of year.
The inflation rate in pensions
One of the most relevant aspects in which the interannual inflation rate is manifested is the elaboration of the amount of public pensions. At this time, it is proposed that the rise in these social perceptions can be generated under a double alternative. On the one hand, with an annual increase in the pension of 0,25%, while on the other hand, a rise of 0,5% plus the rise in inflation is also contemplated in the best of cases. In any case, this parameter will be of special importance for the millions of pensioners in Spain. Where the interannual inflation rate can play a very relevant role in its increase.
It cannot be forgotten that retirees have seen their monthly pay increased in recent years. But in return they have seen how purchasing power has decreased as a result of the increased cost of life that has been reflected with the appearance of the data on the interannual inflation rate. With a slight containment from the beginning of the year and that can influence the configuration of the contributory pension from now on. In one sense or another and that will not be known in depth until the end of the year.
Formation of wages
Another aspect where the interannual inflation rate is manifested is to determine the salary of workers. Even for collective reviews, help for the unemployed, etc. and that they can contribute a slight revaluation with respect to previous years. In this sense, there is no doubt that it is less relevant, but equally important for all social agents in our country. Because in effect, it can happen that the standard of living becomes more expensive and does not compensate for the rise in wages for workers. Beyond another series of more specific considerations.
While on the other hand, we cannot forget at this time that the year-on-year inflation rate is misleading a good part of small and medium investors. Not surprisingly, the trend that can take from now on is not very clear. And this has therefore been transferred to their decisions about what to do in the equity or even fixed income markets. They are not very clear at this time where to position themselves, creating many doubts about what they have to do to improve the balance of their savings accounts.
How does it affect investments?
Another approach that can be given to the year-on-year inflation rate is related to the actions of small and medium investors. Because of course there is one thing very clear and that is that if consumers have less purchasing power, they will also have less money to carry out their operations in the equity markets. That is, there will be less liquidity and therefore the movements in the stock market will relax these days. In this sense, it is a fact that this aspect can harm stock markets, at least in our country.
On the other hand, it should be noted that the interannual inflation rate can be very relevant for the making of the economic policy of a country or geographical area. For this reason, it is highly advisable that small and medium investors are aware of the data of this economic parameter so that they can execute their decisions in the equity markets. Although it is not completely decisive, if at least to value it at the time of making the next investment portfolio. Even to check if it is better to open positions in equities or on the contrary in fixed or from alternative positions.
Sectors where to position
Initially, the year-on-year inflation rate should not influence which sectors of the stock market should direct our savings. It is not a definitive analysis factor, much less for domestic operations on the stock market. If not, on the contrary, they serve to control other types of economic measures. And that is where we will have to turn our strategies into investment from now on. With the real possibility that we must modify our investments in search of greater security in financial assets. Not surprisingly, relationships with the complicated world of money have always been very changing.
While on the other, it is also time to stress that the interannual inflation rate can indicate a conjunctural moment in the economy of a country. But just that and they are other reflections in the productive activity of companies that are listed on the equity markets. This is an aspect that you will have no choice but to assimilate so that you do not make mistakes in your operations on the stock market.
Inflation as an element of analysis
In this sense, it should be used as an element of analysis, but no more. Your investment decisions should be based on parameters other than what is the year-on-year inflation rate. As many of the financial analysts show. So that in this way, you are in the best disposition to make your money or personal assets profitable. At the moment we are heading into the last quarter of the year, the doubts that assail investors are many and diverse in nature and one of them may be the annual inflation data, although on a smaller scale than other economic parameters.
Where the most important thing is knowing how to correctly choose the stock values over other kinds of strategic considerations. It is in the end what will determine the success or not of operations in the equity markets. And therefore it should be your next goal.
Annual evolution of consumer prices
The annual rate of the general Consumer Price Index (CPI) in July is 0,5%, one tenth higher than that registered the previous month. The groups with the greatest influence on the increase in the annual rate are: food and non-alcoholic beverages, which registers a variation of 0,9%, four tenths more than the previous month, as a result of the evolution of fruit prices, which fell this month less than they did in July 2018. Transport, which increased its annual rate five tenths, to 0,5 , XNUMX%, due to the fact that the prices of fuels and lubricants rose this month, while they fell last year.
On the other hand, among the groups with negative influence, housing stands out, with a variation of –1,7%, two tenths below June. This behavior is mainly caused by the stability of gas prices registered this month, compared to the increase in the previous year. It should also be noted, although in the opposite direction, that electricity prices increased this month more than in July 2018. On the other hand, hotels, cafes and restaurants, whose rate fell two tenths and stood at 2,0% , mainly as a result of the fact that the prices of accommodation services rose less this month than in 2018.
With regard to the Harmonized Consumer Price Index (HICP), it must be shown in the latest data from the INE that in July the annual variation rate of the HICP stood at 0,6%, the same as the one registered the previous month. Where finally, the monthly variation of the HICP is –1,1%, as the most relevant factor.