It always used to bug me as a kid when I’d go to the local dairy and spot the soft drink that had once costed $1.40 now gone up to $1.60. As a kid, on a fairly limited income (called “pocket money”), these not-too-subtle price changes could easily cut into my purchasing potential.
It also raised a number of troubling questions – who was the person who just “decided” to pop up the cost of my soft drink by over 10%? How regularly would these incremental price increases occur in the future, and was there a significant risk that they could happen more rapidly? Was there some sort of way I could benefit from it, such as (say), stocking up on soft drinks before the next price hike? What could be the possible motive behind such an action, apart from being a dick?
As an adult, I still dwell on the nature of inflation, but even at this age I am fairly sure I don’t understand it. Inflation is a complex issue, one of the subtleties of economics, and many people who have studied it thoroughly are nonetheless divided over the root and contributing causes of it.
Even as a child, the seemingly inexplicable event of inflation had the effect of undermining my confidence in the system of exchange that I had grown up with (the local dairy), and raised some slightly troubling questions about my future capacity to tolerate price changes.
As a result of inflation there tends to be some “winners” and some “losers”. Believe it or not, some people actually profit off inflation, as the increase in overall pricing drives up the relative value of the businesses, property or stock that they own. But there are definitely some losers, who just happen to be (generally) people on lower incomes with reasonably flat levels of remuneration. It shares some common attributes with my other big nemesis, GST, in that it is generally poorly understood, tends to benefit some parties over others, and tends to be under tight control by a relatively small group of people and institutions. In other words, it is highly sinister.
Regardless of whether you are an inflation “winner” or an inflation “loser”, it strikes me as necessary that every business and every individual needs to understand how to mitigate against the effects of inflation. In fact, the people who have the best strategies for mitigating inflation will, in my view, be the people who accumulate the most wealth over the course of their lives.
This goes beyond the simple factors that are out of our control, such as how the Reserve Bank chooses to set the interest rates in order to influence the risk of inflation. To really fight inflation, you need to take stock of what factors are actually within your control, and then you might be surprised to learn that many of the long term costs are controllable.
So in short, this blog is about how people use various strategies to mitigate against the effects of inflation. It is about gathering ideas on how businesses and individuals can loop out inflation by applying specific strategies.
Inflation is the big enemy that every should be guarding against, but who is nonetheless raiding the chicken coop when nobody is looking.
The biggest problem with inflation is that there are no consistent rules on how it should apply in price changes across the economy. Just because the cost of a soft drink goes up by over 10%, does not necessarily mean that you will be getting a 10% raise this year. Not even likely.
Inflation is an abstract concept. It means the sustained increase in a ‘general price level’. It can be measured many ways, and these measurements include some kinks and flaws.
At the end of the day, no single person will be able to control what a dollar is worth. But by thinking through your cost base, and adopting some better habits, you can get a measure of control over it.
