How inflation effects stock market

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How inflation effects stock market

Now these days every second person is attracted towards shares and stock market. They all want to invest their savings or incomes into the particular stock so that they could get the return. And it is very easy to invest through the smart mobiles as it provides every facility online and also the investors get to interact with the actual sellers of shares without facing the middle agents. Now people want to know about the factors as well which stops them to invest or force them to invest so it’s all totally depends upon the inflation and deflation.

First of all let’s know about the term inflation.

When the price of any goods and services are continuously rising with the high rates, and the prior rates are not remains the same. There is an example of the inflation which will be helpful to know about this term. Suppose you are in the year 2000 and at that time the rate of the oranges are just 50rs. Per kilogram but now you are at the year 2020 and you are purchasing those same oranges at the price of 100rs. Per kilogram So now you can by just 1kg orange but you can get 2kg oranges in just 100rs if you were in 2000 year , it mean the rate of oranges have increase in these 10 years. And this increasing difference called inflation.

Now you are thinking that what could be the reason of inflation which affects the stock market every time. So let take our understanding little bit further so that you could understand the causes in the better way. So according to the research the two factors are supposed to responsible for the inflation in the economy.

  • If the demand of customers are greater than the supply of goods: – Now these times average people have the better earnings and all they want to buy every those things which they desires. As the result their increasing desires leads them to purchase things and the market starts have scarcity of that particular goods that’s why the vendor or producers increase the rate of that goods.
  • If the rate of production increased: – when the rate of production increases then the rate of the final goods will automatically increase. It happens because when the producer get the raw material at the high rate or the producer have to face any taxes on their production then they will increase the rate of their final goods to get the actual amount what they have spent on that.

Now let’s see how these prices impacts on the stock market.

The rate of the shares of the stock market depends on the demand and supply of the goods, and the demand and supply depends upon the factors like culture, society, politics, economy, and other. It means anything which affects the investor to invest into any shares that could be the reason it might be the low price of the share or the high price as well.

These followings are the inflation impact on stocks

  • Interest rate
  • Purchasing power of the investor
  • Impact on stock
  • Taking risk on the long term investment.

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