Lorna Tan Sun, Nov 18, 2007
The Sunday Times
INFLATION could hit 5 per cent in the first quarter of next year. This would be a 25-year historic high.
Trade and Industry Minister Lim Hng Kiang told Parliament on Monday that record oil prices and higher food and transportation costs could take their toll on the Consumer Price Index (CPI).
The last time inflation hit a high level was in July 1991, when it reached 4 per cent.
The CPI has been on a steady uptrend this year: It rose 0.5 per cent in the first quarter, 1 per cent in the April-June period and 2.7 per cent in the third quarter. It is expected to rise at least 2.7 per cent for the current quarter.
Inflation and value of money
SIMPLY put, inflation is the increase in prices of goods and services over time, which means it diminishes the purchasing power of today’s dollar in the future.
While $3 buys you a cup of coffee today, you might need $4 in the future. So we end up buying less in the future with the same amount of money.
There are exceptions. Prices of electronic goods such as DVD players can go down over time because of the product cycle and economies of scale.
‘With rising inflation, if you don’t look at your investments carefully and do something about it, you will find that eventually inflation will erode your purchasing power and thus your wealth,’ said Ms Anne Tay, OCBC Bank’s vice-president of group wealth management…….
Risk-averse investorsIT STANDS to reason then that conservative investors who put their money mainly in bank deposits will eventually end up worse off.
Investing at 2 per cent while inflation is running around 4 to 5 per cent will see your wealth steadily eroded…..
Starting earlyHAVING a financial plan early on lets you take a long-term investment horizon, which is beneficial on various fronts.
‘The young are best-placed of course, as they stand to gain the most from compounding, dollar-cost averaging, investing at a lower risk level and maximising of returns over the long term’, said Mr Lim…….
Older investorsIF YOU have a shorter time horizon, common sense dictates that you shouldn’t be investing mainly in risky instruments……..
On a positive noteTHE good news is that inflation is generally not a ‘bad’ thing, as it is typically accompanied by a robust economy, which in turn results in higher incomes.
The increase in wages should be more than enough to offset the increase in the prices of goods, said Mr Tan…….
Click here to see FULL article.
Other Related Articles:
- Rich Money Habits - #2
- Money Sense
- Rich Money Habit #9: If You Want Different Results, You Would Have To Do Things Differently
- Rich Money Habit #5: The Rich use Credit Cards wisely, the Poor abuse Credit Cards
- Rich Money Habit #12: Orrie the Ostrich
Other Updates in Library
- Rich Money Habit #12: Orrie the Ostrich
- Rich Money Habit #11: Philly the Peacock
- Rich Money Habit #10: Your Belief Systems Will Determine Whether You Become Rich, or Remain Poor
- Rich Money Habit #9: If You Want Different Results, You Would Have To Do Things Differently
- Rich Money Habit #8: The Rich work at building Wealth, the Poor merely try to survive
Email to your friends
0 Responses to “The incredible shrinking dollar”