Insights

Is inflation back in black? Here’s what it means for ASX shares

Apparently, inflation is back in black and back into positive territory Here’s what that means for the economy and for ASX shares.
The post Is inflation back in black? Here’s what it means for ASX shares appeared first on Motley Fool Australia. –

Effect of inflation on asx shares represented by finger pointing to letter blocks spelling the word inflation

Inflation is not a problem we hear too much about in 2020 – apart from a lack of it. In fact, most of the discussions surrounding inflation have instead been about deflation, or negative inflation.

Inflation, if you didn’t know, refers to the (usually) gradual loss of purchasing power of a currency over time. It’s the reason your grandparents used to talk about a loaf of bread costing 25 cents, or a brand new car costing $5,000. Most economists accept that a small level of inflation is good for the economy. It encourages people to spend their money sooner rather than later. It also encourages credit (borrowing money) since a loan loses its ‘real’ value over time with inflation.

Inflation used to be an ever-present threat to economic growth that governments and central banks watched like a hawk (and raised interest rates if it got too high). Under conventional economic theory, inflation is usually pushed higher in times of strong economic growth, and falls off the perch in times of sluggish growth or recession. But over the past 10 years or so, economists have stopped talking about inflation and started to talk about the lack of it. This has only been exacerbated as a result of the coronavirus pandemic. Since the pandemic began, the entire world has been plunged into recession. Inflation in Australia actually went negative (i.e. deflation) for the first time since 1998 in 2020.

Inflation is back in black

But according to reporting in the Australian Financial Review (AFR) this week, inflation is back in black and let loose from the noose.

According to the AFR, Australia recorded the biggest quarterly rise in inflation since 2006 in the quarter ending 30 September, increasing 1.6%. That pushes the annual headline inflation rate to 0.7%, up from the -0.3% that was running in the previous quarter.

The fall that inflation took in the quarter ending 30 June was apparently the biggest quarterly fall since the Australian Bureau of Statistics began recording inflation way back in 1948.

What do higher prices mean for ASX shares?

Whilst this news looks good for the economy, there are a couple of caveats to mention. Firstly, as the AFR notes, childcare costs were a significant component of the positive quarterly inflation number at 0.9%. Childcare was temporarily made universally free by the federal government earlier in the year. However, this policy expired on 13 July. Further, the oil price spent the quarter recovering from historic lows (including a short period of negative oil prices). This would have fed into petrol and transportation price rises over the quarter as well.

Even so, all things considered, an inflation rate of 1.6% for the quarter is good news. It indicates that the Australian economy is in recovery mode (even if it is mild at this stage). And that, in turn, is good news for the ASX shares that operate within it.

Man who said buy Kogan shares at $3.63 says buy these 3 ASX stocks now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

In this FREE STOCK REPORT, Scott just revealed what he believes are the 3 ASX stocks for the post COVID world that investors should buy right now while they still can. These stocks are trading at dirt-cheap prices and Scott thinks these could really go gangbusters as we move into ‘the new normal’.

Find out the names of our 3 Post COVID Stocks – For FREE!

*Returns as of 6/8/2020

More reading

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Is inflation back in black? Here’s what it means for ASX shares appeared first on Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!