Inflation is one of the most important variables in the economic sector to the point of being decisive for making many decisions in this disciplinary field. It can be said that inflation can influence many of your usual activities and how could it be less in your own pocket. From this scenario, it can be said that inflation is an economic process caused by the imbalance between production and demand. As a consequence of this incidence, it can cause a continuous rise in the prices of most products and services. And how could it be less than a loss of the value of the money to be able to acquire them or to make use of it. With the purchase of material goods included.
If inflation is distinguished by one thing, it is because of its high impact on consumers' pockets. Not surprisingly, inflation is a parameter of special relevance to determine the workers salary or even to update the agreements of the different sectors in the world of work. On the other hand, it also serves to review real estate rental contracts. So if inflation is very high at that time, it will be noticed in the fee that tenants will have to pay from that moment.
One of the big concerns on the part of Western governments is that inflation skyrocket. Not surprisingly, the effects on the economy are very pernicious and ultimately end up affecting users. This is one of the reasons why they try to control it over other considerations. In particular, if economic activity is in a recession phase, as you will have seen in the last economic crisis in 2008. To the extent that a large part of monetary policies base their strategy on greater control of this important economic variable.
Evolution of consumer prices
The annual rate of the general Consumer Price Index (CPI) in the month of May is 2,1%, one point higher than that registered the previous month. The groups with the greatest positive influence on the increase in the annual rate are:
Bus Routes, with an annual variation of 5,1%, more than three points above that of the previous month. This increase is due to the fact that the prices of fuels and lubricants and, to a lesser extent, passenger air transport, rose this month, while they fell in May of last year.
Housing, whose rate increased one and a half points and stood at 2,3%, due to the increase in electricity prices, higher than in 2017. The rise in diesel prices also influenced, although to a lesser degree for heating, which went down last year.
On the other hand, in the month of May the annual variation rate of the HICP stood at 2,1%, one point above that registered the previous month. The monthly variation of the HICP is 0,9%, according to the latest data provided by the National Institute of Statistics (INE).
How does inflation move?
Everything that is to maintain inflation in a range that goes from 0,5% to 3% is considered normal and to a certain extent logical that it occurs. Another very different thing is that it exceeds these margins and in which case there will be no choice but to vary the policy regarding the price of money. Well lowering or raising interest rates, depending on whether inflation is low or high. Because indeed, few economic variables have such a direct impact on consumers' money. To the extent that depending on their evolution, it can be said that they have more or less money. To a certain extent, it generates a very important piece of information to establish what the level of wealth of a family is at a very specific moment.
From this general scenario, you cannot understand inflation as just another economic data. If not, on the contrary, as something very close to your personal interests and that every month it is renewed in its data. To the point that it is very followed by almost all the economic agents of a country. In this sense, you cannot forget that a lack of control in inflation was the trigger for the great economic crisis in the 30s during the last century. And for this reason, we do not want this worrying scenario to repeat itself, especially in European countries.
Its impact on the stock market
On the other hand, it cannot forget from now on its impact on equity markets around the world. Because although their relationship is not direct, it can move the stock indices in one direction or another. Of course it is not the most followed economic data by investors. But yes, any deviation from normal channels can be taken to enter or exit the financial markets. Beyond other technical considerations and maybe even from a fundamental point of view.
In principle, high or low inflation does not necessarily have to influence a rising or falling stock market. Not surprisingly, there is another series of more relevant data to determine this evolution of financial markets. In this sense, it can be considered a more or less neutral data to make a decision with the investment of your personal or family assets. Although it can provide you with the odd clue about what can happen in these international squares each time a piece of information of these characteristics is published. In any case, you shouldn't take inflation with undue concern from a stock market point of view.
Compare shopping cart
One of the best ways to check the real evolution of inflation is by looking at the shopping basket. It will be decisive to show which are the articles or products that go down or go up the most every year. Because in effect, the shopping basket represents all the goods and services that families consume during a year. Each one has a price, which can vary over time. The interannual inflation rate is calculated by comparing the price of the basket in a given month with the price of the same basket in the same month of the previous year.
As you well know, in your own home, the greatest impact on the evolution of prices is manifested in the shopping basket. That is, the expense you will have now It is not the same as the one you had ten or twenty years ago. You will have noticed that prices have been progressively rising each year. Although with logical oscillations in each of them. All this is as a consequence of inflation since it is decisive so that you can have a greater or lesser purchasing power at a certain time. It is finally one of his main priorities. Measure the price level in any economic activity, as pointed out by the most prestigious economists in the world.
Causes of inflation
Another very important aspect of this relevant economic data is the one that refers to why it occurs in some moments of life. Well, inflationary pressures are a supply and demand imbalance that causes the rise in prices in one or more markets. In this sense, the central bank of a country or a common economic zone may decide to increase the money supply to stimulate production. However, if the demand for money or production does not grow along with the supply, that is when what we call inflation can be generated.
It is generally linked to demand. Indeed, it is very common for it to appear at the precise moment when general demand increases and the supply of the productive sector is not capable of meeting that demand. Therefore, the immediate effect is a price increase, in greater or lesser intensity depending on its level. On the other hand, inflation also emerges when production costs rise. This may be due to a rise in the prices of raw materials or even to the monetary demands of the workforce itself.
Nor can it be ruled out that this economic movement makes an appearance due to the expectations that the producers themselves are creating. In this sense, causing a rise in prices is largely considered by economists as artificial. With very clear interests for their respective sectors and that can cause serious divergences in the economic policy of a country or a joint economic space. In any case, the causes of inflation can be explained from different schools of economics. From the purely monetarist ones to those derived from Keynes's thesis. With very different solutions to this problem that can arise at some point in the economic cycle.