Inflation

I have been talking about inflation for months. So, there is no surprises to see high inflation numbers reported in the newspaper today. Inflation is everywhere a monetary phenomenon. Hence, it depends a lot on whether the authority is determined in controlling it. In Singapore, the internal factors causing inflationary pressure are mostly created artificially by the government policies. For example, recent high car prices are mainly due to high COE and our housing sector is heavily supported by the HDB market. If the authority is determined in controlling the inflation at all cost, they can do it rather easily by introducing some policies to remove these underlying factors. The external factors such as food prices are however more difficult to control. Anyway, we should not dwell into that and let the authority worry about it. Hopefully, we will not see high inflation rates hitting more than 10% like what we have in the 70s.

Inflation is bad for savers. If it left uncontrolled, we will see our savings turned into wasteless papers. It has happened to many countries such as Vietnam, Brazil, etc and it will happen to us if we do not take steps to counter the effects. In times like this, it is best not to keep too much savings. Cash is not king under such situation. Prices for precious metals and commodities will soar. Stock prices of companies dealing in these will go up too. In addition, companies with monopolistic pricing power such as the utilities and public transport companies are attractive because they are able to price themselves out of these inflationary risks. The ones to avoid are the bonds and fixed income assets because their values will drop for every increase in the inflation rate.

I believe our inflation rate will continue creeping up for the time being. In the meantime, invest with care.