Many are already feeling the consequences as global inflation rises to record highs. Here we will take a closer look at exactly how inflation and rising interest rates will continue to affect you and three immediate impacts on your finances.
Foreign Exchange & Stocks
The US Central Bank recently enforced its most significant rate increase since 1981. The current annual inflation rate increased 8.6% as of May 2022, leading to soaring energy prices, including electricity, oil, gasoline, and natural gas. If you look at these rising rates in terms of foreign exchange or forex trading, the US dollar has risen by 10% with increased demand for the currency, somewhat of a consolation. The volatility of the current economic situation is attractive to forex traders who see it as an opportunity, even if it comes alongside increased risk.
Stock markets have been hit hard, with all indexes taking massive falls. The Dow Jones Industrial Average fell under 30,000, and the S&P500 declined by more than 20%. This bear market is pushing many investors to be more cautious about their investment choices and hedge against inflation. Some take advantage of falling prices with contracts for difference or CFD trading, which allows for speculation on both falling and rising stocks.
The US is far from alone with these latest rate increases, as the same can be seen in every part of the world, from New Zealand to Switzerland. In the United Kingdom, inflation rose to a record high of 9% this month, the highest in 40 years.
Loan & Credit Rates
With rising inflation comes higher interest rates, impacting all types of borrowing, including mortgages and smaller loans. In the United Kingdom, interest rates have already increased to 1.25% and could rise to a record 3.5% by the end of this year. The lucky fixed-rate mortgage holders will not see the effects for a while, but those with tracker mortgages will feel the pain already.
Not just mortgages, all loans, and credit card rates are impacted, with an average of around 18% for a credit card in the UK. Although there is an opportunity to benefit from the rising interest rates by saving, there is an imbalance, and unfortunately, rising prices are winning.
Day-to-Day Expenses
Inflation rates are based on the price of what is known as a basket of goods but include hundreds of common items purchased. The Consumer Price Index shows how much this “basket” has increased, a whopping 9% in the last year. Inflation in the UK is estimated to reach 10% by the end of 2022. If you think of this in practical terms, it equates to an increase of £380 in the average annual food bill for a UK family.
With climbing food and fuel prices, no one can avoid the effects of rising inflation. Energy bills are also negatively impacting the average household electricity price has increased by over 90%, putting massive pressure on household budgets.
