Prices are rising at a steadily rapid rate, and it doesn’t seem like it’s stopping anytime soon. For instance, one piece of kuih lapis used to be priced at 30 sen, but it has now increased up to RM1.50!
What exactly is this change, and why does it happen? This is the result of the economic phenomenon known as inflation.
The question you might be asking is, what is inflation? And did you know that investing in property can help you during inflation? Read on to learn more!
| What Is Inflation?
What Is Malaysia’s Inflation Rate Now? Subsidies Contribute To Low Inflation Rate How Does GDP Affect Inflation? |
What is inflation?
Inflation is the result of a rise in prices and interest rates for products and services. This increase translates into a decline in the value of money, thus reducing purchasing power. This essentially means that fewer goods can be bought for the same amount of money.
A decrease in purchasing power ultimately impacts the cost of living for the common public, which leads to a deceleration in economic growth. To ensure the economy continues to run smoothly, the relevant monetary authorities, such as the central bank, would take the necessary steps to manage the supply of money and credit to keep inflation within acceptable limits.
Inflation is also a means of measuring the impact of price changes of different goods and services by representing the increase of prices in an economy through a single value.
What causes inflation?
The main cause of inflation is the increase in the money supply. Sustained inflation occurs when a country’s money supply growth surpasses economic growth.
The money supply can be increased by monetary authorities through printing and distributing more money to citizens, loaning new money as reserve account credits through the banking system by purchasing government bonds from banks on the secondary market, and legally devaluing legal tender currency.
There are also three other causes of inflation:
1. Demand-pull inflation
Where prices increase due to the lack of supply of goods or services available to keep up with demand.
2. Cost-push inflation
Where prices increase due to the rising costs of producing goods and services.
3. Built-in inflation
Where the rise in living costs makes it necessary to increase wages, thus causing a further increase in prices to offset the wage costs.
These cases ultimately result in money losing its purchasing power.
What is Malaysia’s inflation rate now?
According to the Department of Statistics, Malaysia’s annual inflation rate has hit a one-year record high of 3.4% in June 2022 from 2.8% in the previous month, exceeding the market consensus of 3.1%. Amidst sturdy consumption after improvements following the pandemic, food prices increased at a fast pace, at a 6.1% rate after gaining 5.2% in May.
Subsidies contribute to the low inflation rate
Due to the government’s efforts to control the prices of goods and services, Malaysia’s inflation rate is ranked among the lowest in the world, maintaining a single-digit rate in comparison to other advanced countries, most of which face a double-digit inflation rate.
This inflation rate maintains its low rate due to the government’s commitment to providing subsidies for products and services so that the citizens won’t be badly affected by the rising prices of goods and services.
How does GDP affect inflation?
Growth in GDP (gross domestic product) causes inflation, and if left unchecked, may cause hyperinflation, where people will spend more money due to its expected declining value. As the GDP increases, prices will increase alongside that, causing a self-reinforcing rising cycle.
A sustainable increase in annual GDP is desirable to maintain economic stability without causing negative side effects. Having a high growth in GDP can be risky as it is likely to come with an increase in inflation, thus further reducing the value of money.
How Can Property Help Us During Inflation?
The value of money has decreased due to price increases, and the costs of products and services are expected to rise even further. It is advisable now more than ever to protect money against inflation.
Tangible assets such as real estate increase in value even during inflation – in comparison to non-tangible assets such as cryptocurrency – making it an effective and inflation-proof investment. Since there is always demand for living space, owning real estate protects against crisis regardless of the rate of inflation.
Investors turn to real estate to safeguard their assets, and this drives the market even further as many properties are expected to increase in value in the future. Securing residential property is one of the best ways to protect against inflation, either by renting out the property or leveraging on its effects of appreciation.
Conclusion
In sum, inflation is the result of rising prices that eventually cause a decline in purchasing power. Having a sustainable plan to protect your assets can help you achieve financial security and guard you against the negative effects of inflation. You can consider investing in property as a method to safeguard your assets in order to avoid any financial crises in the future.
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