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Why Does Stock Market Falls With Rising Inflation
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[QUOTE="Mika, post: 254814, member: 29399"] When inflation rises, the price of raw materials also increases. In order to control the rising inflation, the central bank increases the interest rate (this happens in every country, where there is a functional government). With the rise in the interest rate, the return of debt and fixed income instruments also increases. This makes the debt market attractive. Therefore, people start selling off their equity, so that they can invest their money in the debt market. Since the central bank has increased the interest rate, the cost of borrowing is also high. Raw materials, on the other hand, are also priced high. Due to the high burrowing interest rate and high prices of raw materials, the profit margin for business decreases. This is reflected in the company’s quarterly results. When the profit goes down, negative sentiments will grow among investors. Selling in the equity market and negative sentiments result in a decrease in stock prices. [/QUOTE]
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Why Does Stock Market Falls With Rising Inflation
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