New Zealand is nearing full employment. The government has just announced a series of increases not only to the minimum wage, but to allowances and pensions as well. Fuel has jumped above $2 per litre for most parts of New Zealand, with a clear plan to increase the excise by 3c per litre per year. So why is now a good time, with all the money going around, to start to adopt some inflation-smart practices?
If you’ve used some of the calculators on my blog, you’ll see how a lot of times the weekly, the monthly, or the annual savings value that gets produced depends upon the price level of the key resource being consumed – for example, fuel.
The bottom line is that it is always a good idea to adopt strategies to reduce one’s exposure to inflation. But we are now approaching a period of peak inflation – which means that it is especially a good time to adopt inflation-friendly strategies now.
Fighting inflation involves not just reducing your cost base, but reducing your actual reliance on the inputs that vary in price. It makes you super productive, and if you run a business, super lean. It also makes you rather environmentally efficient – perpetually reviewing your base of costs for any potential reductions means that you, over time, eliminate your output of emissions.
Economics holds that as a nation approaches full employment, the rate of increase of general price levels escalates sharply. We are now reaching the peak of the cycle, and who knows how long that cycle will last. Furthermore, with an increasing set of restrictions on free market flow, such as a foreign buyers’ ban and increasing restrictions on skilled immigration, there will be skewed price changes in many areas.
These little nips and tucks that you make help to provide you with the budget for future expansion. If you’re a business, they also open up the possibility that you can increase your market share instead of simply raising your prices to keep afloat – while the tide of raising prices forces your competitors to raise their rates, you can simply remain stable, knowing that you have a low cost base for each new sale.
It works even better to have switched from a car to an ebike when the price of petrol is going through the roof. Or when you’ve invested in solar power and the price of retail energy is on the increase. Your return on investment for each investment medium increases significantly. Some of the investments I have made over the last year in solar power along with other forms of renewable technology are starting to pay bigger and bigger dividends, and will continue to do so long into the future.
And in some ways it’s just good to be counter-cyclical. When everyone else is buying a house, you buy a business. When everyone else is spending more money, you fight harder to reduce your spending and increase your household efficiency. While the gains you make in the short run may appear to be minimal, the rates of those savings returns will increase steadily as price levels increase. Forcing yourself to be efficient and to think of the future is the best way to embrace it.
