The difference between stagflation and shrinkflation. The financial jargon buster

A lot of us are trying to read up on the world of finance - from indexes to interest rates, here is a breakdown of some of the lingo that might pop up
The difference between stagflation and shrinkflation. The financial jargon buster

What do terms like interest rates, markets, and inflation actually mean?

As the cost of living rises and stock market indexes continue to swing, there are a lot of confusing financial terms popping up in the news. 

In order to save a little sifting, here is a quick breakdown of some of the jargon you might hear over the coming months.

Interest rates 

Countries have been hiking interest rates this week in an effort to tackle inflation (an increase in prices due to a decline in a currency's power). Interest rates are the amount a lender charges a borrower. 

The US Federal Reserve has hiked interest rates by half a percentage point while the Bank of England has announced that it will raise the base rate of interest to 1%. The idea behind these hikes is that consumers will have less to spend, pushing the demand - and thus prices - of goods down.

Stagflation 

Stagflation refers to an economy experiencing a perfect storm of high inflation rates, slow economic growth, and high unemployment. Luckily, Ireland has managed to avoid a period of stagflation, as some had feared when the pandemic hit.

Bull market 

A bull market is used to describe a long period when the price of assets is rising, often referring to the stock market. The longest bull market in modern history occurred from 2009 to March 2020, when the market entered a bear market following the onset of the Covid-19 pandemic.

Bear market 

Over the past few months, many economic experts have been expressing concerns about ‘bear markets’. While Dubliners may mistake the term for a popular coffee shop, finance buffs use it to describe a situation in which a market experiences a prolonged, 20%, decline from previous highs.

Nasdaq 

Nasdaq is a global, electronic, stock market where investors buy and sell shares in more than 3000 companies. Most of the big tech companies are in this market, which slid into a bear market in March.

S&P 500 

The term ‘bear market’ has also been paired with the S&P 500 in recent weeks, with equity strategists from Morgan Stanley writing about fears that the index would enter a bad patch. The S&P 500 is a stock market index of 500 leading, publicly trading, US companies. It is regarded as the broadest gauge of US stocks and, often, the stock market overall. 

Dow Jones 

The Dow Jones Industrial Average (DJIA) is a stock market index that tracks 30 large blue-chip companies (recognized, established, and financially sound companies like McDonald's) that trade on the New York Stock Exchange and Nasdaq. Along with The Nasdaq Composite and the S&P 500, it is one of the main three indexes used to measure how the market is performing.

Escrow

Escrow is when a third party holds an asset or funds before they are transferred from one party to another. Selling Sunset fans might recognise this term, which is associated with real estate but can apply to any situation where funds will be transferred to another party. The term will probably pop up if you're reading about the Ireland Apple Escrow Fund in the news.

Shrinkflation 

Consumers may have noticed some chocolate bars and cereal boxes looking smaller. It turns out that no one is going crazy, it’s all down to ‘shrinkflation’. A lot of companies are shrinking the sizes of their products - while charging the same price - as costs go up. 

In the US, a bottle of Dove shower gel has dropped two ounces, while Pringles tubs have shrunk by 17.5%.

Fintech

This is another one popping up in the news a lot, as 'pillar banks' Ulster Bank and KBC depart the Irish market. The pillar bank system was designed to consolidate the Irish banking sector after the 2008 crash. In 2022, many are turning to online, or fintech, banks that have no physical stores, such as Revolut. Fintech simply describes the use of technology to deliver financial services to consumers.

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