Anyone who watches TV news has certainly heard about inflation many times. The information provided is usually accurate and well-documented, taken from official sources and supported by information about its impact on the economy and citizens’ purchasing power.
Inflation in the news: what it means for prices, pay and markets
Anyone who watches TV news has certainly heard about inflation many times. The information provided is usually accurate and well-documented, taken from official sources and supported by information about its impact on the economy and citizens’ purchasing power.
Following news about inflation trends is essential, as it can help you keeping up to date on the cost of living, making more conscious financial decisions, or deciding when to invest with Moneyfarm or other expert advisors. Of course, in order to ensure that the information provided by the news is truly helpful and relevant to everyday life, it is necessary to know what inflation is in the first place.
What’s inflation?
The prices of products and services are not fixed and immutable. Over time, they inevitably vary, leading to increases or, in the best cases, reductions. When increases do not affect individual products but are generalised, thus affecting all products and services available in a specific area, and occur within a certain period of time, we can talk about inflation.
There can be several causes behind rising inflation, which include, for example:
- growth in demand for products or services against a supply that is stable but unable to adequately meet demand, leading companies to increase prices;
- increased production costs, which are reflected in higher prices for final products or services;
- a growth in money supply that is not balanced by increased production.
Other factors may include tax increases, currency devaluation, and unforeseeable events that cause supply or production problems.
Impact of inflation on prices and wages according to the news
According to what is usually shown on the news, inflation has a significant impact not only on prices – consisting of an increase in prices – but also on wages.
More specifically, when the news talks about “rising inflation”, you can be sure that the cost of living is increasing and that you will be able to buy fewer products or services with the same amount of money. Not only non-essential goods, but also basic ones such as food, electricity and transport will tend to increase in price, which will affect household finances.
The loss of purchasing power is not always adequately compensated by wage growth. Although increases may be made to adjust salaries to the rising cost of living, these do not always manage to keep pace with rising inflation. This can lead to a reduction in the lifestyle and quality of life of workers and their families.
How markets deal with inflation
News related to inflation usually includes reports on the markets. These are affected not only by rising prices and the loss of value of money itself, but also by the monetary policies that follow the increases.
To curb inflation, the Bank of England may decide to raise interest rates. This decision makes borrowing more expensive and, as a result, leads to a reduction in demand. At the same time, due to growing economic instability, investment also tends to slow down.
Specifically, stock and bond markets often become more volatile and see a decline in profits, while bond prices fall and yields rise.
This increases uncertainty and causes growing difficulties for both businesses and individuals.
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