Walking towards our seminar venue at Max’s Restaurant, I saw an enlarged copy of their very first menu. Just look at the price of a whole fried chicken – FIVE pesos!
Do you remember your parents telling how cheap prices were during their time?
O, wag na tayo lumayo, kahit ako, I still remember a time when commuting cost less than 2 pesos, phone calls were 75 cents, wala pang coke in cans, arcade tokens were a buck each, and you can enjoy a movie for less than fifty pesos.
Eh magkano ba ang mga ‘to ngayon? A whole Max’s fried chicken is P389, a small bottle of soda is now P10, P8 is the minimum fare to ride a jeepney, and a regular 2D movie costs P200.
Bababa kaya ang mga presyo na ‘to o mas tataas pa? Nagbabago ang presyo ng mga ito dahil sa INFLATION.
You may have heard about inflation before or maybe you haven’t. I hope by the end of this blog, you’ll have a greater understanding of what it is and how it affects all of us.
What is Inflation?
Have you seen our monthly Facebook post about inflation? Dinaan mo lang ba, o nakialam ka?
In our seminars, regardless where I conduct it (even for economics students who should know the answer), when asked about the current Philippine inflation rate, I always get the same response: a blank stare. But when asked about the peso-dollar rate, almost everyone has a figure in mind.
Why is that? Our culture has taught us to keep track of the peso-dollar rate. While yes, the peso-dollar rate is important, it is not as important as inflation. But why does everyone seem to ignore it?
What if I tell you that inflation is silently eating the value of your savings, will you start paying attention?
Pero, ano nga ba ang inflation? Ito ang pagtaas sa pangkalahatang presyo ng mga basic goods at services. Hindi pa kasama dito ang iyong prepaid load at internet connection. Hehehe
At dahil sa pagtaas ng presyo ng pangunahing bilihin, ang bawat piso na hawak mo ay makakabili ng mas kaunting produkto o serbisyo.
Using our Max’s example, kung ang P400 mo ngayon ay makakabili ng 1 whole fried chicken, ilang chicken kaya ito sa dati nitong presyo na P5? That’s 80 pieces of whole fried chicken!
Now ask yourself, Kung pupunta ka sa Max’s ngayon at may dala kang P5, ano ang mabibili mo? Yan ang epekto ng inflation!
Another example, diba weekly nalang tumataas ang presyo ng gasolina?
Back in 1997 when I got my very first car, a second hand Daewoo Espero, a full tank only cost me P320. That was only P8/liter!
Today, if I live in the same house, and go to work in the same place, unless my salary increases, saan ko kukunin ang almost 80% na itinaas sa presyo ng gasolina?
Kung nagbabago ang presyo ng bilihin, hindi ba dapat gumagalaw din ang pera natin to keep up?
Inflation tells us what our money SHOULD be making, because if our money doesn’t grow along with inflation, nababawasan ang value nito!
The “Good” Filipino Savers
We Filipinos are very good savers. Did you know that in Special Deposit Accounts (SDA) alone, there’s P1.7 trillion? I repeat, 1.7 TRILLION pesos according to the data from BSP as of June 2013. (That’s almost a hundred times more than the P10 billion pork barrel scam.)
Sa SDA palang yan ha, wala pa dyan ang regular savings, checking, time deposit, payroll, and other accounts. Ganyan kagaling sa savings ang Pilipino!
The Real Rate of Return
There’s nothing wrong in having a savings account. In fact it’s very useful to keep our money safe for immediate needs and emergencies. But keeping your money in a saving account long-term, ibang usapan na yan.
Like I mentioned earlier, inflation is silently eating the value of your savings. Take a look at this formula and computation:
(Note that this is a very rough formula, but it will work as a general rule of thumb.)
Do you know what this means? Yung isang libo mo na tiniis mong hindi gastusin at nilagay ng isang taon sa bangko, kikita ng TATLONG PISO.
As you can see, with a national average of the Philippine inflation rate of 3% and the interest rate of a regular savings account of 0.375%, YOUR MONEY ACTUALLY LOST VALUE!
Lahat naman siguro tayo nag iipon because we want to get something better in the future. Pero kung ganito narin lang ang usapan, bakit hindi mo nalang gastusin ang pera mo ngayon?
Unless the goal of your savings is to buy something that depreciates in value (like a smartphone), don’t you think it’s unfair to spend your whole life saving money and when the time comes that you want to spend it, hindi mo na mabibili ang gusto mo?
Not knowing this, a lot of people compromise very important things like retirement.
No matter how much we take care of ourselves, by the time we reach the age of 50, there will be some changes in our body. I’m not trying to be negative here, but it is during this time when high cholesterol, diabetes, and other diseases begin to be felt.
Now, is health care cheap or expensive in the Philippines? It is expensive, right? How can we afford this if we do not have enough money? (Read more: Wealth is Health)
Whether to invest or not, it’s still completely depends on you. But I hope by this time, I have taught you enough about inflation so that you won’t unknowingly wonder why some people remain to be where they are regardless of how hard they work.
Can I share you a little secret that successful businessmen have in common? Aside from hard work and perseverance, they NEVER ACCEPT ANYTHING BELOW INFLATION, and you shouldn’t too!
Filipinos like to complain about prices going up, but they often ignore the fact that their money has been sleeping all this time. The real issue here shouldn’t be whether inflation is rising or not, BUT whether is it rising at a quicker pace than your money does.
Armed with this knowledge, you can now ask the right questions to people selling you investment products. If its performance is below inflation, what’s the point of getting it?
Know your options and take a look at the different investments that can potentially beat inflation. (Watch our TV show here: The TV Show)
Be Updated About Inflation
The Philippine inflation rate is published in the business section of major broadsheets every first week of the month.
This data is gathered and released by the National Statistics Office where you can also get more information.
Lastly, we will be updating this page every time the inflation rate is released so feel free to bookmark our site.:)
The inflation rate for the month of November is 3.7%. Are you beating it?
MORE ON INFLATION:
During my seminars, I tell people that the Real Rate of Return formula just serves as a ballpark calculation. However, since not everyone who reads our posts has attended our seminars, here is the exact formula to calculate the Real Rate of Return:
((1+actual return) / (1+ inflation rate)) – 1
If you plug in the numbers, you will see that using the actual equation results in a slightly lower loss compared to simply subtracting it.
“Simple” version: .00375 (savings rate) – .05 (inflation rate) = -.04625
Formula: (1.00375 / 1.05) – 1 = -.04405
So regardless of which method you use, the fact still remains that if you want your money to seriously grow over time, you have to beat inflation.