What is Inflation and How to Survive Inflation in the Philippines

It’s tough to make your money stretch these days. Prices for basic goods and services seem to be going up every day! You can hardly keep up, and it seems like your hard-earned money is gradually shrinking in value.

You know that you need to do something to protect yourself from the effects of inflation, but what can you do?

In this article, we’ll discuss more about inflation, its causes and effects to people, and tips to survive the rising inflation rate in the Philippines.

What is inflation and how does it affect you?

Inflation is the rate at which prices for goods and services rise. It affects the purchasing power of a currency, meaning that each unit of the currency buys fewer goods and services. In other words, inflation erodes the value of money.

For June 2022, the inflation rate in the Philippines reached 6.1%, which has caused economic hardship for many people.

For example, if the prices of goods increased by 6% due to inflation, that means that a pack of gum that used to cost PHP100 now costs PHP106. This can have a serious impact on people’s standard of living, as they have to spend more money to buy the same things.

If wages do not keep up with inflation, then workers will see their purchasing power decrease. This is one of the main ways that inflation can hurt people’s standard of living. This can cause people to struggle to afford basic necessities like food, clothing, and shelter. In some cases, inflation can even lead to poverty.

What Causes Inflation in the Philippines

There are many factors that can contribute to inflation. Some of these factors are specific to the Philippines, while others are more general.

1. The cost of raw materials and imported goods.

One of the main causes of inflation in the Philippines is the cost of raw materials and imported goods. This is because a large percentage of the goods that are consumed in the Philippines are imported.

As the cost of these imported goods goes up, so does the price of the finished products. This in turn leads to inflation.

2. The cost of energy.

Another major factor that contributes to inflation in the Philippines is the cost of energy. This includes things like gasoline, electricity, and natural gas.

As the cost of energy goes up, it affects the prices of many other goods and services. For example, if the price of gasoline goes up, then the price of transportation will also go up. This can lead to inflation.

3. The cost of labor.

The cost of labor is another factor that can contribute to inflation. This is because as the cost of labor goes up, so do the prices of the goods and services that are produced.

4. The money supply.

The money supply is another important factor that can contribute to inflation. If there is more money in circulation, then this can lead to inflation.

5. Government spending.

Government spending is another factor that can contribute to inflation. This is because when the government spends money, it increases the demand for goods and services.

This in turn can lead to inflation.

6. Population growth.

Population growth is another factor that can contribute to inflation. This is because as the population grows, so does the demand for goods and services.

This can lead to inflation.

7. Wars and natural disasters.

Wars and natural disasters can also lead to inflation. This is because they can disrupt the supply of goods and services.

For example, if there is a war in a country, then this can lead to inflation. This is because the demand for goods and services will go up, but the supply will go down.

The same is true for natural disasters. If a natural disaster strikes, then this can also lead to inflation.

8. Expectations.

Expectations can also lead to inflation. This is because if people expect prices to go up, then they will be more likely to buy goods and services before the price goes up.

This can lead to inflation.

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How does inflation affect the Philippines?

Inflation affects the Philippines in a few different ways.

1. It affects the prices of goods and services.

As we mentioned earlier, inflation causes the prices of goods and services to increase over time. This means that you’ll have to spend more money to buy the same things that you’re used to buying.

For example, let’s say that you usually spend P1,000 on groceries every month. If inflation is 10%, then you’ll have to spend P1,100 on groceries the following month just to keep up.

2. Inflation also affects your purchasing power.

Purchasing power is the amount of goods and services that you can buy with a certain amount of money.

As prices go up, your purchasing power goes down. This means that even if your income stays the same, you’ll still be able to buy less with it.

For example, let’s say that you earn P10,000 per month. If inflation is 10%, then your P10,000 will only be worth P9,091 in terms of purchasing power.

3. Inflation can also affect your savings.

When inflation is higher, the money in your savings account loses value over time. This is because the interest that you earn on your savings is usually lower than the rate of inflation.

For example, let’s say that you have P100,000 in your savings account and the interest rate is 1%. If inflation is 10%, then your P100,000 will only be worth P99,000 in terms of purchasing power.

4. It can lead to higher wages.

Another effect of inflation is that it can lead to higher wages. This is because as the cost of living goes up, so do the wages.

5. It can lead to more jobs.

Inflation can also lead to more jobs. This is because as the cost of living goes up, so does the demand for goods and services.

6. It can lead to more money in circulation.

Another effect of inflation is that it can lead to more money in circulation. This is because as prices go up, people are likely to spend more money.

7. It can lead to more debt.

Inflation can also lead to more debt. This is because as prices go up, people are likely to borrow money to pay for the things they need.

8. It can lead to higher interest rates.

Another effect of inflation is that it can lead to higher interest rates. This is because as prices go up, so does the cost of borrowing money.

9. It can lead to lower savings.

Inflation can also lead to lower savings. This is because as prices go up, people are less likely to save money.

10. It can lead to higher taxes.

Another effect of inflation is that it can lead to higher taxes. This is because as prices go up, the government will need to collect more money in taxes to pay for the things it needs.

11. It can lead to more crime.

Inflation can also lead to more crime. This is because as prices go up, people are more likely to turn to crime to get the money they need.

12. It can lead to social unrest.

Another effect of inflation is that it can lead to social unrest. This is because as prices go up, people are more likely to be unhappy and protest.

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Where can you invest in times of high inflation?

1. Short-term Investments

Investments with short-term horizons are typically less sensitive to inflation than those with longer horizons. This is because the effects of inflation tend to be more immediate in the short term, while they can take longer to materialize in the long term. For example, a one-year government bond will be less affected by inflation than a 10-year bond.

2. Fixed-income Investments

Investments that offer fixed payments are usually less impacted by inflation than those with variable payments. This is because the payments on fixed-income investments are not tied to the inflation rate, so they will not increase along with inflation. Instead, the payments will remain the same, which means that the real value of the investment will decrease as inflation goes up.

READ: Where to Invest in the Philippines?

3. Real Estate

Real estate is a popular investment for those looking to hedge against inflation. This is because property values typically increase along with inflation, as demand for housing increases and the supply of homes remains relatively static.

4. Precious Metals

Gold, silver, and other precious metals are often seen as a safe haven during times of economic uncertainty, and they can also be a good hedge against inflation. This is because the prices of these commodities tend to increase when inflation is on the rise.

5. Commodities

Commodities are another type of investment that can be used to hedge against inflation. This is because the prices of commodities tend to increase along with inflation, as demand for these goods and services increases.

6. Investment-grade Bonds

Bonds that are rated investment-grade by major rating agencies are typically less sensitive to inflation than those that are not. This is because investment-grade bonds have a lower risk of default, so they are seen as being more stable during periods of economic turmoil.

7. Equities

Stocks and other equities can also be used to hedge against inflation. This is because the prices of these assets tend to increase along with inflation, as companies pass on their higher costs to consumers.

8. Hedge Funds

Hedge funds are another type of investment that can be used to hedge against inflation. This is because these funds can take advantage of rising prices by investing in a variety of assets, including stocks, bonds, commodities, and real estate.

9. Private Equity

Private equity is another type of investment that can be used to hedge against inflation. This is because private equity firms typically invest in companies that are growing at a faster rate than the overall economy, so they can benefit from the effects of inflation.

10. Venture Capital

Venture capital is another type of investment that can be used to hedge against inflation. This is because venture capitalists typically invest in start-up companies that have the potential to grow rapidly, so they can benefit from the effects of inflation.

How can you protect your investments from the effects of inflation?

Here are a few tips to help you protect your investments from the effects of inflation in the Philippines:

1. Diversify your investment portfolio

One of the best ways to protect your investments from the effects of inflation is to diversify your investment portfolio. This means investing in a variety of asset classes, such as stocks, bonds, real estate, and commodities. By diversifying your investment portfolio, you can help to protect yourself from the potential downside of any one particular asset class.

2. Consider investing in inflation-protected securities

Another way to protect your investments from the effects of inflation is to consider investing in inflation-protected securities. These are securities whose payments are linked to an inflation index, such as the Consumer Price Index (CPI). This means that as inflation goes up, so too will the payments on these securities.

3. Speak with a financial advisor

If you are concerned about how inflation may impact your investment portfolio, it is important to speak with a financial advisor. They can help you understand the potential risks and rewards of different investment options, and can assist you in making the best choices for your unique situation.

By following these tips, you can help to protect your investments from the effects of inflation in the Philippines.

How can you beat inflation in the Philippines?

Here are some tips to help you beat inflation in the Philippines:

1. Get a job that pays more.

One of the best ways to cope with inflation is to get a job that pays more. This is because as inflation goes up, the prices of goods and services go up as well. So, if you are making the same amount of money, you will be able to afford less and less.

2. Invest in assets that appreciate in value.

One way to beat inflation is to invest in assets that appreciate in value over time. These assets include things like stocks, real estate, and precious metals.

3. Shop around for the best prices.

Don’t just go for the first option that you see. Take the time to compare prices from different stores before making a purchase. You might be surprised at how much you can save just by doing this.

4. Look for discounts and promotions.

Many stores offer discounts and promotions from time to time. Keep an eye out for these, as they can help you save a lot of money.

5. Buy in bulk.

If you know that you will be using a lot of a certain product, consider buying it in bulk. This can often help you save money in the long run.

6. Avoid unnecessary purchases.

Before making a purchase, ask yourself if you really need it. If the answer is no, then don’t buy it. This will help you save money in the long run.

7. Have a budget.

One of the best ways to save money is to have a budget. Determine how much you can afford to spend each month, and then stick to it. This will help you stay on track and avoid overspending.

8. Stay informed.

Keep up with the inflation trends and changes in the economy so you can make adjustments to your budget and investment strategy as needed.

By following these tips, you can help offset the effects of inflation and keep your finances afloat.

9. Invest in yourself.

The best way to survive inflation is to invest in yourself. By continuously learning and acquiring new skills, you will be able to keep up with the rising cost of living and remain employable. Consider taking up courses or attending seminars that will help you become more efficient and productive in your field.

 

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