The Australian federal budget is set to have a negative effect on local stocks – the ASX is tipped to open firmly lower at 10am local time.

There are fears the budget will lead to higher inflation, as Standard and Poors issued a negative outlook for Australia.

Yesterday the ASX closed down 1.1 per cent as US inflation jitters sparked US falls.

GLOBAL INFLATION FEARS

Concerns about rising inflation have loomed over markets for much of this year as the US economy has heated up.

Fears about a sustained jump in inflation have weighed on growth stocks, including those in the tech sector, for much of the year,.

The Australian dollar is higher at US78.45c.

Overnight, investors around the world retreated from stocks as a selloff in technology companies spread to other sectors of the market.

WHAT IS INFLATION?

Inflation occurs when prices rise, decreasing the purchasing power of your dollars. In 1980, for example, a movie ticket cost on average $2.89. By 2019, the average price of a movie ticket had risen to $9.16.

Don’t think of inflation in terms of higher prices for just one item or service, however. Inflation refers to the broad increase in prices across a sector or an industry.

Though it can be frustrating to think about your dollars losing value, most economists consider a small amount of inflation a sign of a healthy economy.

A moderate inflation rate encourages you to spend or invest your money today, rather than stuff it under your mattress and watch its value diminish.