18. Swabeng Discussion: Inflation

Remember the last post about the rising cost of goods and services over time?

We'll try to understand the reason behind it.

Do you also know that this is a Silent Peso-Killer here in the Philippines.

Inflation is basically defined as a general upward price movement of goods and services over a period of time. As time passes, the costs of goods and services increase, making the value of your money decrease over time. There are several factors (will try to add some soon) that determine inflation rate on a monthly and yearly basis.

Inflation is inevitable. No one can escape from it. Take a look at the chart.

Notice that its rising. However, were fortunate that its still a bit low compared with recent years.

Do you have any idea how high it went?

That's more than 50% during the early to mid-80's


Let's say annual inflation is at 3.00% (This is just a safe assumption), you need to make your money work to gain at least 3.00% (to break even) or gain much higher.


I have an example of what would happen to your one-million pesos (deposited one-time) in 15 years given that it's untouched (withholding taxes and other fees are not yet included).

While your money at the bank may still value around one-million, its buying power would significantly reduce over time.


Still not convinced? You may try this and give some variations and I'm sure you'll agree that the end result would still be the same.


Anyway till the next...

17. Swabeng Dilemma: The Power of Your Money (An Introduction to Inflation)

Have you noticed that when you were young, the cost of a certain product or service would only be this amount only to find out years later, the price will increase through the years?


I remember a couple of years back (circa mid-90's), a Burger McDo Meal back then costs only 39 pesos (which includes regular fries and drinks). Fast forward to today, now it costs double at 79 pesos (with the same inclusions).

Within the span of almost two decades, the price of the Burger McDo Meal has doubled given that the product is still the same.


Also, what I remember was when we use to do grocery a couple of years back (circa mid-90's again), You would be able to buy a cart full of groceries for around 2000 pesos. Fast Forward to today again, the same 2000 pesos won't even fill half of the cart (unless your willing to spend more than 2000 pesos).

Given the same span of years, the value of money decreased overtime and you'd notice by then prices of good increase on a time-basis (annually).


I would also remember whenever my Dad takes me to school before he goes to work, Prices of fuel (particularly Diesel) costs around 7.xx pesos per liter. His budget of 500 pesos for diesel would give him around 71.5 Liters that usually lasts a couple of days (given his route would be home-school-work-home).


However, how far can today's 500 pesos worth of diesel can take you? How long it could last given the same route my dad takes? Definitely a few days less that what it can cover a couple years back.


And even way back, I remember my parents telling me that they only receive this amount of money as allowance. Lets say a couple of cents back during their time. They would told me that a bottle of softdrink costs between 5 to 10 centavos and a whole fried chicken at Max's back costs 5 pesos (compared to 449 pesos today).

Imagine the increase from 5 pesos to 449 pesos would be a staggering 8880%. Yes that's 8880% and I kid you not.


Anyway, why costs of goods back then costs much lower than it is today.