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Why Does Stock Market Falls With Rising Inflation
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[QUOTE="Jasmine, post: 254873, member: 49159"] A lot of people believe that the stock market goes up or down based on the demand and supply rule. They believe that the stock price goes up when people start buying and stock price goes down then people start selling. Well, buying and selling activities of course affects the stock price, but there are a lot of other factors, such as economic situation in the country, monetary policy of the country, sales, profit margins, etc. Stock market and inflation are correlated. If you have been investing in the stock market, you might have noticed one common trend. When inflation rises, stock market falls. Do you know why this happens? When inflation rises, purchasing power parity decreases, which means the value of the money decreases, you cannot buy the same thing with the same amount of money. This will increase the production cost of industries (because the price of raw materials have increased) When production cost increases, the profit margin will go down. [/QUOTE]
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