How to Fight Inflation


Inflation is one of the reasons why do you need to invest your money. In economics, we have known inflation as the general increase in prices of commodities. The higher the inflation, the lesser the value of our money. Inflation degrades the value of our money. Your money last year cannot buy the same amount of goods now.

WHAT CAUSES INFLATION TO INCREASE?

Increase in oil prices. Oil is a very important commodity in the world because it is one of the raw materials of every company used to run their machineries and equipments in production. When oil prices shoots up, their costs would shoot up too. Definitely, the only way for them to profit is if they sell their products higher than their costs. This causes the increase in prices of their finished products.

Too much money supply. By Law of Supply and Demand, a high demand with low supply would push the prices up while a low demand with high supply would push the prices down. The same thing goes to inflation.

During my high school years, I used to ask that since Central Bank prints our money, why can’t they just print more and more money and give it to all poor people to alleviate poverty? The answer is it would be dangerous to the economy of that country as it would cause a very high inflation rate or what we call hyperinflation. This was the case why the Zimbabwe currency fell too deep that it has almost no value at all.

Scarcities. Again by law of supply and demand, scarcities in supply of a particular commodity raises its price. When a country experience calamities like typhoons or drought that destroys various farm crops, then the tendency is that the prices of these crops would shoot up too.

HOW TO COMBAT INFLATION?

Add additional income. Take a second job or a part-time job to increase your income. If you can manage a small business while you are employed, then do it. Do something that you enjoy like freelance writing or tutoring academic subjects you’re good at.  

Control spending. Learn to control your spending by cutting on unneccessary expenses prioritizing more on the needs and less on the wants. Try the idea of “downsizing“. Instead of buying a high end mobile phone or a laptop which you can’t really maximize its features and you just buy it just to be “in” trend, buy a low end which you can maximize its features.

Invest in high-yield types of investments. When you have already saved for your emergency fund, try investing the rest of your money into high-yield types of investments. Choose the type of investment which has higher interest rate than the inflation rate. For example, if the inflation rate is 5%, choose a type of investment that has a yield of more than 5%. In that way, your money’s purchasing power won’t be devalued.

Inflation is really a threat to financial freedom as it eats the value of our money. Learn how to fight inflation and increase the value of your money.

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Tyrone is a passionate financial literacy advocate. He started this blog on November 2008 when he watched The Secret which talked about Law of Attraction because he wanted to become a millionaire and wanted to know how a millionaire acts. At the age of 26, he achieved his first million. To find out more about him, click here or follow him at Instagram

22 responses on “How to Fight Inflation

  1. Wala ako masabi, you’re really knowledgeable on this stuff.. Superb facts plus good writing style.. galing bro, hehe.. Sana ako din gumaling sa economics.. I really don’t know much about inflation and other economics related matter.. Anyway, napasyal lang para kumustahin ka, ehhe..

    • Thanks Bro. This blog is also a learning process for me. 🙂

      Hopefully, it would open up more opportunities for me as I included it in my resume. Ssshhhh. LOL. 🙂

  2. Glad you’re touching upon inflation Tyrone, as we had a fun time talking about why a weak US Dollar doesn’t matter over at my site.

    The absolute BEST way to tackle inflation is to take on a TON of debt to buy an asset! If inflation is coming, buy property b/c it will by definition INFLATE higher! MEanwhile, your debt gets inflated away since it’s fixed.

    Inflation is a beautiful thing!

    • Hmmm…. Nice comment BUT I have some objections…

      From what I understand, you’re telling that there is a direct relation of inflation and property value. That is, if inflation rate increases, property value also increases.

      I understand that when inflation rate rises, the value of properties, most probably the house built (building value)may increase its value especially if the prices of raw materials used in construction such as cement, wood, etc. rose. For the land itself, I’m not sure how these would be affected by inflation. From what I know, a land’s value may increase subject to its location and conversion of land type (i.e. from agricultural to residential or commercial)

      Furthermore, I think the law of supply and demand still plays on this issue because however high inflation rate is, if there is no demand for properties (i.e. recession where there is a credit tightening and demand is low), then it’s price won’t go up.

      Tell me what you think…

  3. Tyrone – You basically agreed with me 🙂

    What is money but a piece of paper to use to buy something with.

    The REAL wealth are THINGS. And one of the greatest things is property! Assets = wealth…. cash is an asset, but is just a means.

    You talk about input cost inflation. Bingo. Higher input costs, higher end product prices. That’s inflation.

    Think about the Sy family and SM Prime Holdings. Property accounts for a majority of their assets, and Henry is a billionaire. If Henry ever comes to the states to meet investors, I’ll tell him “hi” for you! 🙂

    FS

    • I think I got your point. In times when inflation rate is rising, it’s better to divert from cash because inflation depreciates its value more than, say, property as an asset.

      So, when talking about rising inflation rates, definitely, cash is NOT king. Did I get it now? 🙂

  4. inflation is an investor’s worst enemy. What makes it worse is that it is unseen and thus harder to combat. Also to combat it, there are quite a large number of inflation protected investments that a person can take shelter in

  5. BINGO! Assets ie property are the end product as to WHAT inflates.

    On the flip side, I still don’t see any inflation in the US, that’s why I wrote my “A Weak US Dollar Doesn’t Matter Folks!” post.

    Ayala Land? Must be a rich family too right? I’m SURE they are hoping for inflation.

  6. In your article you write to combat inflation by taking an extra job and by investing cash. But I think most people will not have the luxury of doing so. Therefore in my opinion most people will have to do plain cost cutting.

  7. Statistically speaking, no one can control or fight inflation. it is the natural economic process that is related to so many things. what we can do is to earn more. That’s it.

  8. Guys, you know where to find the annual inflation rate here in the Philippines?

    I’m considering to invest in mutual funds, would like to know if the probable return is more than the inflation rate.

    Thanks!

    • Hi Wilde, I think you can get the annual inlfation rate in BSP (Central Bank). I think most likely, yields of mutual funds will surpass the inlfation rate.

      For the yields of mutual funds, I would recommend you to visit their website:

      http://www.icap.com.ph

      Go to mutual fund 101 and go to facts and figures. You would find the individual returns of each mutual fund there.

  9. Good info. The best thing to do in my opinion is find a means of achieving a secondary income. Maybe not a “job” per se, but a means of fighting off additional costs you may be encountering.

    • Yeah, he mentioned before that he has been here in the Philippines some 20 or 30 years ago. I love to see US too. Good to see you here btw. 🙂

  10. In case you want to approximate inflation rate in your own way, here is how I did it. The result will not be the overall inflation rate but at least we have some idea.

    Take for example the price of rice. In year 2000, the rice is about P22/kg, now it is about P37/kg.

    Using the formula for compounded interest F = P (1 + i)^n where n is the number of compounding, in this case, number of years. From 2000 to 2010, n = 10 years.

    37 = 22(1 + i)^10 using your scientific calculator, i = 5.34% is our approximate inflation rate for rice.

    In the same manner, you can also compute the inflation rate for the price of gasoline, jeepney fare, tuition fee, etc.

  11. Please tell us of how people have successfully outpaced inflation, concrete cases.

    Take yourself for example, have you successfully outpaced inflation, so that your emergency money is increased by the same percentage as to cancel out the inflation percentage?

    Like this: let us say that your emergency money is set in year one at 1,000,000.00 pesos, the inflation percentage of year one is 5 percent, that means that you must increase your 1,000,000.00 pesos by 5 percent, so that at the end of year one your emergency money is now 1,050,000.00 pesos, instead of 950,000.00 ( a loss of 5 percent ).

    Tell us how you do it: by getting more jobs, or by going into more business activities where you achieve more profit, or by investing your money to gain more return in money?

    Marius de Jess

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