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Inflation, the general increase in prices over time, is a key economic indicator that significantly influences financial markets and wealth management strategies. Beyond its economic implications, the psychology of inflation, i.e. how individuals and investors perceive and react to it, plays a crucial role in shaping financial decisions.

How inflation affects individuals

The impact of changing prices on an individual’s psychology can vary. One significant effect is the perception of value.
As general price indices rise, the perceived value of money declines, leading to a sense of urgency to spend rather than save, as the purchasing power of cash erodes over time. This behaviour can push prices even higher as both consumer demand and spending increase.