Inflation is when the prices of goods and services consistently increase over a period of time, decreasing your money’s purchasing power. It’s something you see at the grocery store, the gas pump or when you pay your bills.
On a daily basis, I monitor these shifts in order to identify how they affect markets, particularly in Forex and Gold positions. Understanding what inflation actually is makes it easier to understand why currencies are becoming stronger or weaker.
Armed with objective data, I bring you along for the ride as these tides turn so you can trade with the most accurate information available.
Inflation is responsible for all prices increasing over time. Because of inflation, each dollar today is worth less than it was yesterday, or last year. It really strikes at the heart of it—the groceries, the gas, the rent.
As money does become less valuable by the day, everyone is forced to reconsider how and when they spend. Whenever I look at risk on a trade, this is something I always take into account. It really drives the market in terms of how people behave.
Understanding how inflation works is especially important when you’re creating a household budget, establishing savings goals, or choosing career fields or trades. If inflation or prices continue to increase, your money has to grow just to stay where it is.
If the opposite happens, a condition known as deflation — when prices decrease — it can cause people to stop spending and slow the entire economy.
Measuring inflation is part answering the tough questions behind the figures that always seem to hit home. The primary instruments for measuring inflation are the Consumer Price Index (CPI) and the Producer Price Index (PPI). The Personal Consumption Expenditures (PCE) Price Index is extremely important.
CPI is designed to measure the cost of living increase by tracking what people pay for food, housing, transportation—things we all buy. PPI focuses on the prices received by sellers for goods, in an effort to capture the first change in prices. PCE is wide-ranging, Fed’s favorite, and tracks more spending categories.
The Bureau of Labor Statistics (BLS) is constantly refreshing the CPI basket. Their approach includes taking data from thousands of surveys of American households to represent how Americans shop. We take price checks every month, alternating between goods and housing.
Having accurate figures makes a difference both in establishing appropriate rates and understanding where taxpayer dollars are going. Here’s a quick table for clarity:
| Index | Tracks | Who Uses | How It’s Set Up |
|---|---|---|---|
| CPI | What buyers pay | BLS, public | Surveys, regular updates |
| PPI | Seller prices | Businesses, Fed | Early in supply chain |
| PCE | Total spending | Fed | Broad, includes more items |
By looking at each index individually, we get a better picture, allowing us to navigate risk and identify lucrative trades.
Inflation usually begins with a demand-pull inflation, which is when there are more people requiring a good or service than there is available supply. Imagine holiday shopping when everyone’s clamoring for the same toy or new piece of tech—prices go through the roof.
Cost-push occurs when the inputs used to produce goods and services, such as oil or wheat, increase in price. This is causing things like bread or gas to become much more expensive at the retail level.
There are times when world events drive up prices, as well. Maybe a storm in the Gulf slows oil, or a drought reduces crops, both driving up prices.
The Fed’s own money moves have played a key role, too. When money is cheap, people and businesses borrow more, increasing demand and pushing up prices.
Inflation has all sorts of unintended consequences. It directly affects your monthly budget. It can feel like each month, you’re making up the difference on essentials. Groceries, gas, rent—everywhere you turn, prices seem to be climbing higher and higher.
Since the beginning of 2020, expenses have increased by more than 23 percent. Even little things like peanut butter or pens start to drain your money. If your wages or pension don’t receive an increase, you’re falling behind.
Beyond the immediate challenge of hourly paychecks failing to cover rising costs, inflation puts increasing pressure on the ability to save or invest. People who have 30-year fixed rate mortgages at 3 percent win if wages increase as well.
Inflation of the order of a few percent is okay, no problem. Hyperinflation, at 50 percent a month, is a different story altogether. With a forward-looking approach, minimal risk-taking and a focus on consistent markets such as Forex and Gold, you are able to stay on top.
I am a remain with tools that earn your loyalty over time. To me, equities of fundamentally strong businesses, U.S. Treasury bonds, and TIPS are good inflation hedges. TIPS, for instance, adjust upward with inflation, meaning your purchasing power in cash isn’t eroded.
My specialty is trading by trade strategies on core pairs like EUR/USD, gold. These pairs are typically good indicators of emerging trends and less often subject to extreme ups and downs. Here’s what works: keep a budget, pay down high-rate loans, and stash some cash for what-ifs.
I never loaded my own gun too heavily. By diversifying broadly across stocks, bonds, gold, and other inflation-linked index funds, I can mitigate that risk. Cutting spending—whether it’s curtailing luxurious lattes or reducing expenditures on streaming services—frees up more money to focus on essential needs.
Inflation is a different picture across countries. I see that things like local policy, cost of goods, and how strong a country’s cash is all shape the rate. That’s how the U.S. Could eventually wind up even as it experiences regularly rising prices.
That said, areas with fragile banking systems or rapid monetary expansion may experience spikes in prices much sooner. When the global economy has a turn—when oil gets expensive or when trade becomes subdued—I see my local prices react right away.
In particular, currencies swing considerably, so if the U.S. Dollar appreciates, imports become cheaper but U.S. Exports will suffer. I look at countries like Venezuela and Zimbabwe, where prices change hourly and daily.
A few examples have decimated cash value overnight to demonstrate how perilous choices or lack of regulation can translate into losses.
Inflation is very quiet at the moment, though it remains somewhat dangerous. Here’s what I watch: CPI, job growth, and the main numbers like that. Many central banks are rather timid, opting for little rate increases or decreases. That’s what prevents inflation from going out of control.
I only trade things that go through my own filters—things like USD, EUR, and gold. These pairs tend to move decisively on the inflation news, giving me a chance to keep risk very tight. Increasing inflation simply makes it clear that Americans are spending even more on groceries, gasoline, and housing costs.
Businesses face increased costs as well, which can dampen their ability to hire workers or force them to raise consumer prices. My approach to get ready for this is to trade small and have a tight stop-loss. I work with established strategies as even one large shift could decimate my clients’ accounts.
Inflation really does hit home quickly. One week milk is three dollars, the next week, it suddenly increases. What I observe strongly through these slight shifts is the underlying transformation of my trading practice and everyday judgments. I would always go with real numbers, not blarney, to identify trends and avoid the big misses. Staying smart on inflation lets me maintain my returns and protect my money. I draw hard lines, choose the easiest strategy and just repeat what clearly works. These are the steps I pass on to regular people who come to me looking to make their money grow and avoid losing it. That’s how you receive real inflation tips, not guesswork. Are you prepared to manage your money more efficiently? Join us, ask questions, and together, let’s make sure inflation keeps your wallet full. Get in touch with us today, and let’s make them on the path to doing great things.