Seasoned investors should know about assets and economic conditions to make the best portfolio decisions. Even if professionals manage your investments, it pays to understand the news, their respective impacts on the market and economy, and your money and assets.

Bellinson Group Tokyo reviews the important -flation terms crucial for your investment journey. These terms provide valuable insights into how your money performs in the market, making them essential additions to your vocabulary.

These are the essential terms:

Inflation

Inflation is a complex economic concept that describes the general increase in prices of goods and services over time, resulting in a decrease in the purchasing power of money. Inflation implies that the same amount of money buys fewer goods and services than in the past. Inflation is not limited to specific products or services but affects the economy, impacting industries such as automotive or energy and, ultimately, the entire country’s economy.

Inflation tells you what minimum annual interest rates you need for your investments to maintain or increase purchasing power.

Stagflation

Stagflation is an economic term describing a rare situation with stagnant economic growth, high inflation, and a sharp increase in unemployment. This combination is unusual because, typically, high inflation accompanies periods of economic expansion, where demand exceeds supply, leading to higher prices.

However, according to Bellinson Group Tokyo, during stagflation, prices rise due to supply constraints, while consumer incomes remain stagnant or decline.

Disinflation

Disinflation is a temporary slowdown in the price inflation rate, where the inflation rate decreases marginally over the short term. Unlike inflation and deflation, which refer to the direction of prices, disinflation explicitly describes the rate of change in the rate of inflation.

A healthy amount of disinflation is necessary as it represents economic contraction and helps maintain a stable economy. However, it is dangerous when disinflation leads to near-zero inflation rates, as seen in 2015, raising concerns about deflation.

Deflation

Deflation is a broad decline in the prices of goods and services, typically linked to a reduction in the supply of money and credit in an economy. This results in an increase in the purchasing power of currency over time. 

While deflation can benefit consumers by allowing them to buy more with the same income, it can negatively affect borrowers, who may struggle to repay debts with more valuable money, and on financial markets, where investments may suffer due to falling prices.

Zero Inflation

Zero inflation means a situation where prices are not rising at all. 

Smart Investments and Due Diligence

According to financial firms like Bellinson Group Tokyo, you should understand how the terms work and how they can affect your portfolio’s health. Average inflation is generally considered a sign of a healthy economy; elevated inflation can have adverse effects. Hyperinflation, for example, can render a country’s currency practically worthless.

Stagflation is another concern, combining high inflation with stagnant economic growth and rising unemployment, posing significant challenges for policymakers. As an investor, you may need to occasionally adjust your portfolio to accommodate these economic changes, another reason it’s best to rely on professionals for financial advice.