How to fight inflation
July 10, 2008 – 9:46 amIf you're new here, you may want to learn what this site is about. Please subscribe to my RSS feed to get latest updates on this blog. Thanks for visiting!
Question: It’s been in the reports recently that the inflation rate has been at its highest since 2000. We in the middle class suffer most, since the prices of all goods have significantly gone up since last year. How do we fight inflation? — Mark
Answer: Just weeks ago, major banks indeed announced that the inflation rate for May 2008 was recorded at 4.18 percent, the one of the highest since January 2000 when the inflation rate was 2.74 percent.
This means that the prices of consumer goods and services have jumped by that much on the average, and that we are near the situation we were in back in 2000.
What causes inflation to spike up? Many factors account for this. One is the rise in international oil prices. As a barrel of oil skyrocketed to more than $130 per barrel this year, pump prices worldwide have gone up as well. And because many industries depend on oil and gasoline to run their manufacturing operations, everything else is affected, from food to electricity charges.
Another reason for the steep hike in inflation is the tight supply of rice worldwide. This supply problem has driven up the cost of rice, and affected other goods as well. Some countries (Philippines and other Asian countries) are more affected than other countries since rice is a staple food.
Still another reason is the increase in transport fares. Most of the population depends on public transport to get to their destinations. As a result, the prices of basic commodities sold in the market have increased, triggering the price hike in almost everything else.
Inflation is a normal occurrence in the economy. Simply put, it is the general increase in prices. This is why over time, you’ll notice that the US$100 you had last year cannot buy today as much in the supermarket as it did before.
In some years, the inflation rate is not as high. Last year for instance, the country had a 2.69 percent inflation rate on the average. Life was better then as compared to now when prices are so much higher. Inflation decreases the purchasing power of the peso and affects the value of one’s savings and investments over time.
Combating inflation
Inflation is part and parcel of the economy, and one cannot do much to lower it. But there are some ways to cope with it. Here are some of them:
1. Find other ways of adding extra cash flow. Since times are tough, now is the best time to follow a sideline or second job. Do something you’re good at, like writing, landscaping or baking. The additional cash to be earned can go into meeting the family’s basic needs.
2. Stop buying expensive items or incurring a unnecessary expense. For instance, if your family is considering on traveling abroad, try delaying until the financial environment is better. Also put a hold on buying big-ticket items such as a new car if it’s not really necessary. You can always settle for a secondhand one.
3. Invest in higher-yielding instruments. If you’re keeping all your funds in your savings account, the value of your of your money has eroded much already due to inflation. Keep only what is necessary in your savings account, then open a long-term high-yielding time deposit for your surplus funds. The rate may not be equivalent the inflation rate, but still, it’s higher than a savings account. If you can take on more risk and are bold, try investing in stocks or bonds, or mutual funds and unit investment trust funds. They may show on the low end of the bracket now but after a while may earn you more.
4. Check other types of investments. Some financial gurus have said that real estate and gold are not as influenced by inflation as other forms of investment.
5. Reduce spending. Involve the whole family in this. Evaluate how you have been spending recently, and see how you can cut this off. There are many expenses you can reduce, from dining in expensive restaurants, visits to amusement parks, unused electricity etc. The funds you will save when you cut your spending can help you meet the growing cost of basic necessities.
If you like this post, please subscribe to my RSS feed to get latest updates on this blog. Thanks for visiting!
| 2.5 |
