MONEY TALK: 5 Things You Need to Know About Inflation

1. Definition


Inflation is the rise in the prices of goods and services in a country. It is translated to the decrease in the purchasing power of a currency. For example, your 500 pesos now can only buy 80% of what it can buy last year.



2. You actually lose money when you save with a piggy bank or under your bed sheet. (I mean long term saving here.)

Having a piggy bank is what most people do to save money. But unfortunately, your money inside it will be eaten wholly by Philippine’s high inflation rate.

Saving for long term in a piggy bank or under your bed sheet is simply outdated and impractical nowadays.



3. You actually lose money when you invest in a bank account due to inflation.

Typical bank savings accounts in the Philippines have an annual interest rate of 0.5 to 1 percent. This is very far lower than the average inflation rate in the country which is 7.48 percent (average from 2005 to 2008). Time deposits though can be up to 4 to 5% but still beaten by the country’s inflation rate.
Note : Data from National Statistics Office (NSO)

4. There are investments that beat inflation. 


Among them are the following:

a. Land usually appreciates. It is one asset that increases in value over time. The problem though with land properties is its liquidity. You can’t just simply sell it in case you need cash for emergency.

b. Treasury bills usually give 10 percent or higher interest rate. The problem though, with treasury bills is that it usually comes in a price limit of 50 to 100 thousand pesos. Can you afford that?

c. Depending on the type of stock or mutual fund, it can also beat inflation but depends much on the investor’s decisions.



5. Computer and other electronic devices generally decrease in price.

Because of the increasing rate of production, the cost of producing electronic devices generally goes down. This results in the decrease in its prices. Look how much laptops cost today; you can buy a decent one for only 20 to 30,000 pesos. Compare this two or three years ago when low-spec laptops costs 50 to 100 000 pesos!

And talking about cellular phones, can you remember how much it costs to buy Nokia 3310 when it first came out in the Philippines? 11,000 pesos! Imagine that? Now, it was already phased out but you can already buy a basic phone, more powerful than Nokia 3310 for only 1300 pesos.

Electronic gadgets are not good investments.

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