Inflation is a effect that will reduce a certain percentage of our money over a certain period of time.When investing ,inflation is a key index to take note of .
For Singapore, our inflation stood from 2.7% - 5.7% .Thus our investment returns should yield more than the inflation rate to preserve our wealth .In the long run,any return that is less than 5% is not helping to grow our wealth .
For simplicity sake , we assume the inflation at 2.7% for the next 10 years,however this is not the ideal case.
For example, today we pay $10 for watching a movie and with 2.7% inflation rate per year.
After 1 yr, we need to pay $10.027 to watch a movie.
After 5yrs,we need to pay $11.425 to watch a movie.
$10(1+0.027)^5 = $11.425
After 10 yrs , we need to pay $13.05 to watch a movie
$10(1+0.027)^10 = $13.05.
After 20yr , we need to pay $17.04 to watch a movie.
$10(1+0.027)^20 = $17.04.
From above example,i using a inflation rate of 2.7% and with such a low rate we can see how our money is being reduced over time.That is the scary part of inflation ,it is unnoticeable and slowly eroding our wealth .
That is why people tend to complain that things get expensive and coupled with low salary increment , ppl who tend to save will lose out in this game .That is to say ,what we have now does not equal to what we have in the future unless we have zero inflation rate but that is out of this world.Although the movie tickets does not increase every year due to sentiment and business costs , it will increase at a go after several years.
Sometimes we watch from the news that NTUC will not increase the price of essential goods such as rice/cooking oil to absorb inflation for lower /middle income families.Sound great but an entity like NTUC who have large number of retail stores across SG , to increase price every year is not cost productive as price tags and IT system need to re-entry which will costs further more and taking people sentiment in consideration ,will we be happy if we see the price of our daily usage goods increase every year?
That is why they will rather increase the price at one go but after several years later .
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