Inflation is something we hear maybe a few times every year and we’ll be like “Yeah, inflation is going up and prices are going up”.
But really, what is inflation?
Investopedia defines inflation as “Inflation is a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over some period of time”. In basic English, it basically means that you are able to buy lesser things with each dollar you have over time.
Everything! It affects the food you eat, the clothes you wear, the transport you take and the holidays you take. It affects everyone, doesn’t matter which country you are from, whether you are poor or rich, old or young. So how are we affected by inflation in Singapore?
Inflation in Singapore is not as bad as other countries, but it still exists. There are different categories that are affected by inflation. But for our examples, we will be looking at it overall. Take a look at the picture below.
The inflation rate in 2019 was 0.57%. This means that something that costs $100 in 2018 would cost $100.57 in 2019. You might think “Hmm, that’s not too bad.” But this could just be last year where inflation increased little. Let’s take a look at the following year then:
As you can see, the inflation rate in 2008 was 6.63%. This means that something that costs $100 in 2007 would cost $106.63 in 2018. That’s a huge increase, especially when we add all the items that we purchase in a year. To estimate the average yearly inflation rate, it will be better if we have a bigger sample size of data to judge on. So let’s take a look for the past 19 years:
See, it’s not too bad, but 1.57% is still something. If you had kept $100 since 2000 for something that costs $100, you probably won’t be able to buy that item with the $100 you have (well maybe you can due to advances in technology, but that’s another topic).
Well, the government can’t be tracking the prices of everything in Singapore. It will take ages! So the way it does is it takes a certain items and use it as a sample. Hence, the price of everything doesn’t actually go up every year. But for sure if you’re talking about 10-20 years, it will have went up at some point. Just think about how a McFlurry was $2 when I was in primary school around 10 years ago and now it costs $2.70!
Essentially you will have to find a way to make your money grow. The easiest, least effort and lowest risk way is through a High Yield Savings Account, commonly known as HYSA. As described by their name, these savings account give you a higher interest rate. A normal savings account will give you like 0.05% p.a. while a HYSA might give around 1% to 2% p.a. Here are some HYSA that I know:
We might wonder why inflation even exists. But good or bad, we just have to embrace it and use the tools that is around to help us combat it. Do yourself a favour and prevent your savings being eaten up by inflation!