Inflation is defined as an increase in prices that results in a loss of buying power over time. The average price increase of a basket of selected goods and services over time can show the rate at which buying power declines. The increase in pricing, which is frequently stated as a percentage, signifies that a unit of currency buys less than it did previously. Inflation is distinguished from deflation, which happens when prices fall but buying power rises.
While specific product price increases are easy to track over time, human requires expand beyond just few things. Individuals require a wide range of items and services in order to live a comfortable existence. Commodities such as food grains, metals, and fuel, utilities such as power and transportation, and services such as health care, labor and entertainment are examples.
Inflation attempts to assess the overall impact of price fluctuations on a wide range of goods and services. It enables a one value representation of an economy’s rise in the cost level of services or goods over time.
As prices grow, one unit of money buys fewer goods and services. This loss of purchasing power affects the cost of living for the general people, resulting in a slowing of economic growth. Economists generally agree that sustained inflation develops when a country’s money supply expansion outpaces economic growth.
To counter this, the monetary authority, which is usually the central bank, takes the necessary actions to regulate the monetary base and credit in order to maintain inflation within acceptable levels and the economy functioning smoothly.
Monetarism is a common hypothesis that describes the link between inflation and an economy’s money supply. Following the Spanish conquest of the Aztec and Inca empires, for example, vast amounts of money and silver flowed into the Spanish and other European economies.
The value of money declined as the money supply expanded rapidly, contributing to swiftly price increases. Depending on the sort of goods and services, inflation is quantified in a variety of ways. It is the inverse of deflation, which occurs when the inflation rate goes below 0% and prices fall overall. Remember that deflation is not the same as disinflation, which is a similar term that refers to a reduction of the inflation positive rates.
HOW TO COPE WITH IT
Apart from the outbreak, the Philippines people have been dealing with the country’s growing price rate. According to the Statistics Authority of the Philippines, the inflation rate increased by more than 100% from 2.1% in May 2020 to 4.5% in May 2021.
Most of the time, income growth does not keep pace with inflation, making it more difficult to make ends meet. Although business owners said in the Total Remuneration Survey 2020 that they want to raise pay by an average of 5.6% in 2021, more over half of the companies indicated that they will delay income increases or reduce salary increment levels to keep expenses down.
1. STAY ONE STEP AHEAD
Plan ahead of time, even if you haven’t yet felt the effects of inflation. Make a plan. Determine your current expenses as well as the cost of your future aspirations. After that, make a budget and stick to it to avoid overspending. If you are not sure how much you should save for the future, you can use some Inflation Calculator tools to determine the cost of your objectives..
2. EXPLORE INCOME SOURCES
Increasing your cash flow is a sensible method to defy the odds brought on by rising commodity prices. If you are unemployed, hunt for new employment opportunities. According to a poll, 35 percent of businesses want to increase their workforce this year. If you are currently unemployed, you may soon locate jobs that match your qualifications.
Besides that, even if you are currently employed, it is critical to look for potential additional sources of income. Look for part-time jobs or company ideas that you can run alongside your fixed job.
3. LOWER YOUR EXPENSES
You have to make ends meet with limited resources. Reevaluate your budget to determine what is vital and what is not. This will assist you in prioritising and ensuring that your essential necessities are satisfied despite inflation. You could also wish to look into less expensive alternatives to your normal options. The tiny funds you will amass over time can be utilised for future objectives.
4. START INVESTMENT
This is the greatest moment to think about investing. In the Philippines, inflation may result in slower growth rates for bank products. If you have additional cash to save, investment items are your best bet. There are financial instruments that can provide higher returns to help you combat inflation. Sun Life Prosperity Funds, for instance, is a mutual fund investment that can help you optimise your earning potential. If you want to learn more about mutual funds, you can also speak to a financial counsellor.
5. LIFE INSURANCE
Purchasing life insurance allows you to hit two birds with one stone. It will offer you with the coverage you require while also assisting you in saving for crucial life milestones early on. Depending on your upcoming ambitions, life insurance can be an excellent way to save for the things that are important to you. If you are a parent, a life insurance plan designed for schooling, such as the Sun Dream Achiever, can be of great assistance. This will provide your family with greater financial security and peace of mind. It also includes increasing assured cash benefits that can be utilized to cover tuition from the 12th to the 17th year following the effective date of your insurance.
The Philippines’ inflation rate is greater than it has been in recent years, and it is expected to remain so through the third quarter of the year. You may already be experiencing the affects as you are able to buy less with the same amount of money. However, you might find a silver lining by taking benefit of opportunities that will allow you to maximise your earnings. It is possible to survive and even thrive in the face of inflation if one practices cautious spending habits.
You can also contact the financial advisors for advice on how to create a fund for your top priorities while keeping inflation in mind. Financial advisors have the knowledge to advise the right solutions for you, whether they are investments, life insurance, or both.