Inflation and Interest Rate

News | August 29, 2022, 1:41 PM | The content is supplied by a Guest author

In the UK, the consumer price index rose 8.8% year-on-year. The most basic method to combat the inflation crisis experienced all over the world is to increase interest rates. Bank of England Governor Andrew Bailey raised the policy rate to 1.75% by increasing the interest rate by 50 basis points at its policy meeting in August. This is the sixth consecutive rate hike.

Food and motor fuels have the most significant impact on the inflation rate, which is at its peak in 40 years. Especially motor fuels are 42.3% more expensive than last year. The Bank of England was raising interest rates by 25 basis points in succession to slow the rise of inflation. The 50-basis point increase at the August meeting represents the UK's largest one-time increase in interest rates in nearly 30 years. Andrew Bailey's goal is to reduce inflation to 2%.

GBP & USD & EUR

One of the things most affected by the high inflation and motor fuel crisis is the currencies of the countries. The US currency USD has continued to appreciate against both the European currency EUR and the UK currency GBP since the end of 2020. 1 USD is currently 1.0025 EUR and 0.85173 GBP. On the same date last year, 1 USD was worth 0.8493 EUR and 0.7282 GBP. We can say that the EUR/GBP parity draws a horizontal chart.

Can I Profit with High Inflation?

While the overall rise in prices is bad news for consumers, it creates many opportunities for investors. The Bank of England considers moderate inflation a sign of a healthy economy and has set a CPI rate of 2% each year. If inflation rises above 3% or falls below 1%, the Bank of England must explain why to government and citizens.

When inflation rises, consumers are encouraged to spend more and invest more. Knowing that their money will become worthless in the long run, investors would rather spend and invest now than risk paying more in the future. When interest rates rise, the cost of borrowing increases, so it becomes more expensive to borrow money to buy new and expensive things or grow your company.

Company income and dividends are adjusted for inflation. When inflation rises, the stock market is often badly affected. Increasing costs also increase the expenses of the business. It is possible that the value of the business with decreasing profits will decrease. If you think that the inflation rate has peaked or will peak soon, you may think that the price of the stocks in the stock market has also bottomed out. With the gradual decrease of the inflation rate and the interest rate, you should buy stocks at the right time in order not to miss the rise of the stock prices in the stock market.

Investing your money in real estate or commodities are also good options to beat inflation. Real estate prices tend to rise during periods of high inflation. When the interest rate also rises, first-time home buyers may delay buying, thus increasing rental demand for real estate. Those looking for a shorter term and cheaper investment may prefer commodities. Inflation and commodity prices also have a special relationship. When inflation rises, the prices of goods rise, and when the prices of goods rise, the prices of metal, oil and food used to produce the goods also rise. If you think inflation will continue to rise, investing in commodities may be a good choice for you.

Trading During High Inflation

The fact that The United Kingdom is the country with the highest inflation among the G7 countries and the Sterling is one of the worst performing currencies against the US dollar this year can allow us to profit by trading on various CFDs. A reliable broker helps us get the maximum benefit from such economic changes.

Established in 2001 with the goal of democratizing Forex trading, easymarkets is a beginner-friendly broker with the option to deposit from $25 and can also be made with a credit card. Offering CFD trading since 2016, the broker is the official partner of Real Madrid C.F., the most successful football club in world history. On easyMarkets you can trade cryptocurrencies, forex, indices, shares, metals, commodities, vanilla options.

easyMarkets is one of the best forex brokers to use in the UK as it is regulated by many regulators and offers negative balance protection and a guaranteed stop loss for clients. easyMarkets' forex market offers a wide range of currency pairs. We talked about the price movements of Sterling, Euro, and US Dollar in the last year. If you were in the forex market, you were likely to make the most of these fluctuations.

Traders can trade with the MT4 trading platform using many functionalities up to 1:30 leverage. Beginner traders can get a good introduction to forex trading with easyMarkets' educational and research content. Offering an advanced customer support, the broker assists its clients in all matters through live chat, Viber, Facebook Messenger, WhatsApp, and social media platforms.