Inflation, disinflation, deflation | What is the best scenario for investment?

Deflation
Deflation

If the concept of inflation is quite familiar to us all, that of disinflation is much less so even if it is the phenomenon that we are experiencing. While inflation is the increase in the cost of living or the goods and services that are bought and sold on the market, disinflation is a price increase which continues to exist but it tends to fall over time. In other words, disinflation is a decrease in the rate of inflation as long as it remains in positive territory. When the inflation rate enters a downturn or prices fall across the board are talking about deflation.

Inflation

Inflation

We see the effects of each of the three phenomena from the economic and financial point of view. Inflation is normal or acceptable to our economic system when it is between 1 and 2% per year. The more you go beyond this threshold the more difficult it is for investment to be able to beat inflation. For this reason, during lifting excessive inflation, central banks enact restrictive policies that curb the price run. Disinflation is considered a beneficial step for the economy and finance because when the cost of living falls, investment can rise above the rate of inflation with generous yields in both bonds and in equities.

Deflation

Deflation

In practice everyone gains, both consumers and investors. This is true until you change to a period of deflation. The fact that a particular good or service sees its value decline over time means that it produces a loss of wealth and economic stagnation. In recent years, deflation has reigned for example in Japan, becoming a harmful phenomenon, especially for equity markets.

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