Thursday, January 10, 2013

Knowledge about Inflation

This term getting famous nowadays, and it was never be a topic until recent years. People are talking about this,whoever, and wherever. Why? Here's why.

First, things are getting more expensive.
When we talk about inflation, we talk about the price rise. Everything around us getting more and more expensive, from the food we eat, to the cloth we wear, to the fuel we fill in our cars.

Second, the purchasing power getting weaker.
We can start feeling that, although our salary increases every year, it doesn't give us better life. In fact, we don't really get more, we get less. The amount of things we can buy actually becomes lesser although we earn higher salary. Everything is getting more expensive, and the salary increase doesn't rally catch up the speed of price hike. The number of the salary transferred into our bank account is just an illusion for us. It seems to increase, but in fact it is not.

We call the phenomena as inflation, when things get more expensive, and our purchasing power gets weaker. Inflation rate is actually the speed of the price rising. Let's say, the inflation for the year is 5%, that means our average annual expenses increases 5%. If our salary didn't catch up this speed or rate, we are losing money. The money we earn becomes lesser.

To be more specific, let's just talk about daily expenses. We spend on food, transport, wear, and living. Let's say every month we spend RM1500 including in rental, food and petrol.(I believe some might think this is very less, especially those staying in big city like Kuala Lumpur and Johor Bahru.) Which means, one year we are spending RM18000. One year later, this amount increase by 5%(the inflation rate), which is RM900 increases. Five years later, it increases more than RM4500(rough estimation, it should be more than that).

What does it means? That means five years later, your annual expenses increases three month of your original expenses! You are spending 15 months of original expenses for just 12 months of your new expenses.

That is why, if our salary doesn't go up, we have to cut down our expenses. That's the effect, things are getting more expensive, and our purchasing power is getting weaker.

This is the first thing we need to know, the inflation rate. But, what shall we do? To be continued in next blog...

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