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  TRADE STOCKS IN HIGH INFLATION ENVIRONMENT 

Generally, the stock market hate inflation. the inflation will reduce the purchasing power, lift up all prices, and decline of corporate profits. the central banks would concern about inflation rate while increase, follow that, the central will hike the interest rates to control price surging.

 

 Inflation definition

inflation derive from price increase of the necessary goods and commodity goods. inflation has classified in three types those are cost push inflation, Demand pull inflation, and wage inflation.

cost push inflation  

Aside from price increase the cost push inflation is good for economic and business. when more money chases the few goods will cause the cost push inflation. during the recession period, the central bank would reduce the interest rates to revival of the economy. then after, more money would come into system. lower lending cost will boost investment activity and establish a new business which all create more jobs following that, establish additional consumer demand will boost the consumer goods price. the economic supply will create for all goods demand. during cost push inflation period, all entity and business firm's profits will soar. when it goes to out of control the central bank will intervene for control the prices.

Demand pull inflation   

this kind of inflation make adversity to economy and business's. particularly, Energy, metal, and intermediate goods prices will soar to uncontrollable level. probably, high monetary inflation could create Demand pull inflation. during the higher demand pull inflation, business firm's sales and revenue will decline dramatically further GDP growth would fall following that the investors post pone their investment plan. for example, 1972 crude oil crisis had severely affected the global economy, all necessary goods prices moved unexpectedly which had caused political and social tension escalated in rest of the world. as well as, in 2010-2011FY supply side crisis had negatively affected the global economy. at that moment, the stock market slumped. when occur this supply side issue, higher chances pull down the stock market. 

Wage inflation    

most likely, wage inflation created either by demand pull and cost push inflation. when consistently increase over the price, employers who demand salary increment, corporates have to increase the salary according to inflation rate. wage inflation indirectly affect the business firms by increasing of whose operating expenditure then profit will decrease so, stockholders value will decline.

Gold and currency trading opportunity   

Gold is a good hedging for inflation. the intelligent investors switch over their money during the high inflation environment. specifically, demand pull inflation is more dangerous to stock market however, create better opportunity to Gold investment. in terms of the Gold, which price would not increase during economic expansion. Economic uncertainty, financial market collapse, and higher inflation will push-up the Gold price. the investors should look at future estimation of the inflation rate. the future estimation is being so high, that is a potential opportunity to invest in the Gold.

if inflation spread across the world, the global investors could move to the Dollar index, because US Dollar is safe heaven than other financial elements. the Dollar index might get more strength, the emerging countries currencies will depreciate against Dollar. it is a rule of thumb. Indian currency also not exception from that. the RBI has many time increased the interest rate from 2010 to 2012. during that period our Indian currency has been loosing its value against Dollar. RBI had battled with currency value sliding even though, RBI could not its under control. higher will leads to weaken the currency absolutely this is a good opportunity to make short position on INR against Dollar.

   

cyclical stocks

Basically, cyclical stocks are interest rate sensitive stocks. during the higher inflation environment, the stock market correction may arrive short selling opportunity on cyclical stocks. regarding of this topic let discuss in coming article.