Why inflation reduces the willingness to consume

LIs it worth checking the performance of your own stock portfolio every day? Jan Pieter Krahnen, the scientific director of the Leibniz Institute for Financial Market Research Safe and Professor of Banking and Finance at Frankfurt’s Goethe University, has a clear opinion: “I advise against checking the financial status every day,” he said recently in an interview with “Die Zeit”.

If you look back at the markets this week, you really shouldn’t take a daily look at the performance of your own stock portfolio. The frustration would have been too great – maybe with the exception of Friday. Weak markets in Germany and Europe were outpaced by even sharper falls in the US, which in turn made for even worse outcomes in Asia and Europe.

Wednesday was such an example. Inflation means that consumers have to accept a loss of purchasing power. Accordingly, on Wednesday on Wall Street, where the broad-based S&P 500 index fell by 4 percent in the course of trading, the listed trading groups Walmart and Target in particular got under the wheels. The shares of the Düsseldorf retail chain Metro did the same as the US retailers. Now the largest dealers in Germany are not listed. But they too are feeling the trend. Groceries are literally exploding in price.

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Anyone who relies on their car – and there are many in rural areas – is currently almost exceeding the limit of their credit card at the gas station. Only the relief package will probably bring fuel prices in this country back below the magic limit of 2 euros per liter. According to a survey, the Germans are even more worried about the consequences of inflation than about Russia’s invasion of Ukraine. Almost a third fears that they will have to restrict their own lifestyle, and they are already saving heavily: especially when it comes to spending on cosmetics, clothing, entertainment and travel.

The fact that consumers will at least not have to pay negative interest on their savings, which are constantly shrinking due to inflation, in the foreseeable future does not improve the prospects for the markets either. Concerns about aggressive interest rate moves, especially by the US Federal Reserve, are weighing on the stock exchanges at least as much as the high rate of inflation. There are Chinese stimulus packages that gave the markets a boost at the end of the week, just a drop in the ocean. In the coming week, too, investors should prefer not to look at the portfolio every day.

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