Stock Inflation
The inflation supposes a loss of purchasing power of the money, as consequence of the rise on prices. If there is inflation, the investors will have to obtain a superior profitability to it, if not, they will loose purchasing power. So then, before a high inflation, the profitability offered by the securities will have to be increased, if not, they won’t be attractive for the investors.
In general terms, before high inflations the stock exchange investments diminish, while if the rate of inflation is low the stock exchange investments are more attractive provoking an increase on the quotations. However, in a first phase the inflation usually provokes a rise on the quotations of the shares due that the investors try to protect their capital with growing investments, that are usually investments in variable interests.
Then the demand of shares rises and thus also the quotations. Also, in this first phase the tendency of consumers is to buy, for which the companies invest and produce more and by it they obtain better results.
Now then, when the inflation lasts for long periods, the situation changes, due that it brings an increase on the costs of production and the loss of purchasing power of the consumers.
Both elements take you to a diminishing of the sales of the company and to a negative account of results, affecting to the falling of the quotations of the shares of the same.
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