Let’s learn about inflation. Is this good or bad?
It’s bad. It’s increase meant a decline in purchasing power
A bowl of noodle could have been RM8 last year and RM10 this year. If we earn the same amount of money, this meant that we must now eat fewer bowls of noodle. A simple calculation as below.
Salary of RM3,000 could have purchased 375 bowls of noodle last year. In other words, we could eat a bowl of noodle every day last year! And still have some money left for a glass of kopi-O occasionally.
Meanwhile, when the noodle becomes RM10, with the same salary, we could only have 300 bowls of noodle a year. In other words, there are 65 days which we will be hungry. Not a happy situation, right?
This is why salary increase is needed, just to balance back the bowl of noodle we could afford. Assuming the salary increase was a typical 5 percent. That would be RM3,000 x 1.05 = RM3,150. If the bowl of noodle is RM10, then the same person after salary increment could afford 315 bowls of noodle this year. Unfortunately, he will still be hungry for 50 days out of 365 days every year.
Salary increase versus inflation for Malaysia?
Malaysia’s inflation has been low as per statistics. In other words, some noodle shops may have increased their prices but surely there are noodle shops which are still charging almost the same or maybe new noodle shops charging lower to get more sales.
Meanwhile the salary increase is expected to be 5.1 percent for Malaysia on average for 2024. Earlier article here: Salary Increase in 2024. I think we need to ensure we only eat from noodle shops which did not increase their prices then. It will not stop the popular ones from increasing their prices but it does give the less popular ones some business.
Inflation can be good too. Moderate one lah.
It means demand is increasing and will push supply growth; business opportunities
When businesses expand due to higher demand, they will need to buy more raw materials, hire more people and spend more on business expansion too. Many companies will benefit, more people would have jobs and more businesses would help in this expansion through their services too. What happens next is that when more people have work, they could spend their salary, they could buy new cars with their salary and they could afford to go for holidays too and more. This drives economic growth further. This is what economists call as Multiplier Effect.
What can we do about inflation so that its impact is minimized?
No one can escape from the effects of inflation but actually we could do a lot. Instead of eating the noodle of RM10 per day, how about eating it only once per week? Other days, maybe simple bread, sometimes two packs of nasi lemak, sometimes two roti canai and sometimes bihun goreng pack and more of other choices. We still enjoy that RM10 noodle we love but we will have enough money to spend on food for the whole year.
Instead of the full convenience of driving a car and incurring petrol, toll and maintenance charges, just buy the Unlimited Pass lah. Walk a bit, take the public transport as much as we could. This saves a lot too.
Happy ‘fighting’ inflation. It’s going to be around all the time.
Please feel free to share this article too. (links are all below) Thank you!
Sign up for daily investment news updates (FREE since Nov 2013 and FOREVER).
Alternatively, Follow me on Telegram here.
Please LIKE kopiandproperty.com FB page to get daily updates about the property market beyond kopiandproperty.com articles.
