Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Most commonly used inflation indexes are the Consumer Price Index (CPI) and the Wholesale Price Index (WPI).
Components of Inflation:
- Demand-Pull – When demand for goods and services exceeds production capacity.
- Cost-Push – When production cost increase pushing prices higher. This could happen with a supply chain is disrupted or a raw material becomes scarce.
- Built-In – When prices rise, wages rise too, in order to maintain living cost.
We believe that economic growth (GDP) combined with inflation are the two most consequential factors for understanding the economy and markets.