Method~of~Solutions » Inflation

Silver : Medium Term Outlook – 03 August, 2011

Divesh Singhvi — Thu, 04 Aug 2011 13:34:51 +0000

Introduction – Gold has shown a powerful rally since October 2008’s lows of $681 per ounce, and certainly one could argue that a correction would vicious sooner or later. However, the fundamentals for Gold are only getting stronger as US inflation is climbing above 8.5% real rate and interest rates continuing to drop. This is creating a “negative” real interest rate environment amidst a continuing weaker US dollar. Besides Debt Turmoil of US and Defaulting countries are certain to surge up after Greece, Portugal now Italy, Spain and the list goes on. Hence it is hard fundamentally to argue against Gold at this time, creating difficulty in forecasting the intermediate highs and lows. With that said, assuming QE3 or some form takes place soon then our projections of Gold to touch the new high of $1800 is quite likely to be hit this year itself before we can look for any genuine correction in the precious metals.

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Inflation – How To Minimize Its Impact

Shakti Singh Dulawat — Fri, 30 Jul 2010 19:57:54 +0000

As you go about with so many things in view of your life today, transacting business, tending your family’s needs, busy with career and many others, we definitely stand still once there is a threat to our security such as inflation. But what is really inflation? Inflation is a universally bad phenomenon – it is certain to affect you one way or the other. But you can do a couple of things to minimize its impact on your savings and investments.

Tips on how to minimize its impact:

If your income hasn’t seen an increase this year, you need to save a bit more. See which expenses you can cut down on.
Do not enter into longer duration fixed deposits or other ‘lock-in’ type products. Deposit rates are very likely to rise in the next year or so, so you might as well lock in rates then
Do not keep too much cash lying idle in the bank account. This is always a bad thing, but it is worse with the inflation reality nibbling away at whatever is there.
Real estate and gold are good investments during inflationary times. If these are in line with your overall financial diet, now is a good time to make the move. But beware of taking on floating rate loans, since rates may rise very soon.

Having these tips in our finger tips now, let’s understand deeper the reality of inflation:
Basically, inflation is money supply. If the government prints more money, or if the money goes around faster in the economy, there is inflation. Sometimes, not enough goods are produced (like due to the monsoon failure of 2009). So the same money ends up chasing too few goods, and there is inflation again. This last is called supply-side inflation.

The government often tries to blame most episodes of inflation to supply side, and claim that these things are beyond its control. However, the fact is that inflation is nearly always a money-supply issue.

Why does the Government print more money?
This happens when it has borrowed too much, and cannot figure out a way to pay back. So Government being what it is, gets out of the hole by printing Rupees, and making all of us poorer in the process (since our money has lost some purchasing power). Of course, the Government cannot do this recklessly, since that would put prices on an uncontrollable spiral.

Why does the money go around faster?
Money goes around faster with or without us controlling it. This brings us to interest rate, which is an important determinant of how fast money goes around. If the interest rate is low, there is more incentive to borrow and utilize the money for economic activity. Banks lend, households or businesses borrow, deploy the money and the cycle is completed faster. On the other hand, a higher interest rate discourages this entire cycle by acting as a barrier to borrow in the first place.

Moreover, the Reserve Bank of India uses this mechanism to control how fast money goes around. If inflation is rising, it raises rates and tries to apply brakes. Vice versa if inflation is low and no economic activity is to be seen. This action constitutes monetary policy.

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In conclusion, inflation does more harm than good. The most common of all this bad effects is conflict itself – any businessman would want rates to be low. He too is affected by inflation, but he is much more directly affected if its borrowing is too costly. Government is another borrower, so it too would like rates low. Most households on the other hand, are much more worried about inflation – they would like low inflation, even if it means high rates. RBI needs to proactively manage this ‘conflict’. When it fails, one side gains at the expense of the other, thus we must work hand in hand together to avoid the tendencies of having all the chances of inflation to emerge.

What is negative inflation

Shakti Singh Dulawat — Thu, 18 Jun 2009 14:33:00 +0000

Friends today, Inflation in India turned negative 1.61 for the first time in 32 years but the prices of food items like fruit and vegetables, cereals and oil were still higher than last year. It is a big question that what is mean of negative inflection.

Negative inflation is an indication of over production of goods. It indicates that market is flooded with all essential goods. Because of the huge supply the prices will fall down. But what is the truth? The price of all essentials is going sky high. These points indicate the mistake in the tabulations and assumptions and projections. The modern economists have to think of changing GDP method of tabulations. The theory they learn is being proved wrong. But their pride does not allow them to accept it. Poor men!! Let them accept that India needs a concept for statistical tabulations suitable to India. Let our economists work for evolving a method for India. The government should give them patronage for that. Let there be debates in media and public forums.

One of my friend email me today about this negative inflection, he said the Truth about Inflation or Deflation in relation to Cash, Demand and Supply .I am publishing this here, I hope you people like his words.

You have CASH in hand and you wanted to BUY a product/service which is available in market. (INFLATION)
You have CASH in hand and you wanted to BUY a product/service which is NOT available in market. (INFLATION)
You have CASH in hand and you do NOT want to BUY a product/service which is available in market. (DEFLATION)
You have CASH in hand and you do NOT want to BUY a product/service which is NOT available in market. (DEFLATION)
You do NOT have CASH in hand and you wanted to BUY a product/service which is available in market. (INFLATION)
You do NOT have CASH in hand and you wanted to BUY a product/service which is NOT available in market. (INFLATION)
You do NOT have CASH in hand and you do NOT want to BUY a product/service which is available in market. (DEFLATION)
You do NOT have CASH in hand and you do NOT want to BUY a product/service which is NOT available in market. (DEFLATION)

Conclusion: Negative inflation can also be termed as deflation. Deflation is a fall in the price of goods and services. Deflation occurs when the inflation rate falls below zero per cent. This is the opposite of inflation.When the inflation rate is negative, the economy is in said to be in a deflationary period.

Inflation Rate May 14, 2009

Shakti Singh Dulawat — Thu, 14 May 2009 10:26:00 +0000

Inflation for the week-ended May 2 has come in at 0.48% as against 0.7% week-on-week.
The Wholesale Price Index (WPI) for all commodities is up 0.4% at 231.6. Also, the inflation figure for week-ended March 7 has been revised to 0.89% versus 0.44% (provisional). Primary articles, fuel group and manufactured products are up 0.4%, 0.2% and 0.4% respectively.

Inflation Rate April 30, 2009

Shakti Singh Dulawat — Thu, 30 Apr 2009 13:36:00 +0000

Inflation for the week-ended April 18 has come in at 0.57% as against 0.26% week-on-week.

Manufactured products index was up 0.3% and fuel was up 0.1% (WoW), while primary articles index rose 1.7% (WoW).

Inflation Rate April 23, 2009

Shakti Singh Dulawat — Thu, 23 Apr 2009 19:49:00 +0000

Inflation Rose to 0.26 percent remained around a three decade low, Evan as essential food articles like vegetables and cereals turned costlier , some thing that is likely become an issue in loksabha election.

Key Concept of Inflation

Shakti Singh Dulawat — Tue, 14 Apr 2009 21:34:00 +0000

Inflation is something we cannot escape from. It happens in every economy, and we feel it in our every day purchases. It may not be an appealing concept at all, but there’s nothing we can do about it – really.

Most people think that inflation is when prices go up, but in reality, the rising prices is a symptom of inflation. Inflation is really a situation wherein there is an overflow of money. When this happens, people are willing to pay more for a commodity, and prices go up as well as demand.

As a result, we get less for our money than before. Before 1776, there was no such thing as inflation. Five dollars was worth five dollars – no more, no less. It isn’t that way anymore. Our money loses worth and we can buy less with our money now than our forefathers.

Have you ever heard stories from your grandparents about how much a dollar was worth in his day? Fifty cents was good for a week, and you could buy a car for a few hundred dollars only. Who doesn’t wish for days like that?

If you find yourself in a situation where there is just one pair of concert tickets left, would you pay over the top price just so you can get in, or would you tuck away your money and settle for a date in a coffee shop instead? What about if there was no tickets left except through scalpers – this is how these people make money. The same concept works in business too. People buy early, and sell at premium price. This is also the same concept as in real estate, when you get in on a pre-selling stage, believing that particular piece of property will escalate when done.

Inflation has also changed our lives tremendously. History will show that life was much more simpler a few decades ago than now. Even if the basics are the same, prices are much higher. The cost of living now is incredibly high compared to the 1960s.

What happened? Crises happened – we had to go through wars, calamities, recession, crime, counterfeit, and overprinting – to name a few reasons. Technically, when any government goes into overdrive and starts spending more than it has, then it is in deficit. This will result in inflation going up. Of course, the government should find a way to pay off whatever it had to borrow, and the inflation rate goes down.

You don’t even have to look at history books to know that war and calamities have a severe effect on the economy of a country. Look around the world – the Iraq war cost gasoline prices to shoot up and with that everything became more expensive.

To make up for the increase in prices, families had to cut back on their luxuries and non-essentials, and at the same time, wives had to look for ways to augment the husband’s income. Life became harder, and earning a living became more stressful.

Inflation has a severe effect on our lifestyle, family life, and personal life. It spares no one. Everyone is affected.

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QUOTE OF THE DAY
“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of the citizens. “ – John Maynard Keynes

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CONCLUSION:
Inflation may be a stressful concept to live and deal with, but it is not going to last. It’s a situation that is more often than not, temporary, and we all manage to live through it, albeit having to be more prudent than usual.

Investing Without Fear of Inflation

Shakti Singh Dulawat — Thu, 09 Apr 2009 19:26:00 +0000

Inflation makes your money worth less. What you could buy with $100, 3 years ago, you definitely cannot buy as much today. So, how can you counter inflation, and stop your money from being worth less?

Since your money today is worth less what it was worth several years ago, then maybe you should consider investing it. Don’t spend it or hide it in your sock drawer. There are many places to put your money into, you just need to know which one. It isn’t just about investing per se, but finding the right investment so that your money could grow, and not disappear all of a sudden.

Some of the choices in investing are real estate, business, mutual funds, Forex, or in a saving fund. If you want to be conservative, you can just put your money in a Time Deposit, and let it earn interest slowly.

The first rule in investing is to make sure that the rate of inflation is not higher than the rate of return.

To understand this, you need to know what the rate of inflation means. Inflation is when prices go up, and they will – over time. There is not much of anything that becomes cheaper as the years go by. Everything becomes more expensive on the average. The rate of inflation is knowing how much they will increase.

Let’s suppose you bought a pair of shoes for $100, by this time next year, the same kind of shoes will cost $110. This means that the rate of inflation was 10%. This will be your guideline in investing your money. You have to make sure that the money you will make on your investment is higher than the rate of inflation.

You have to keep checking what the rate of inflation is because it is constantly changing. The government will let you know what this rate is.

How then can you know what the rate of return is? Simply put, this is how much money you make on your investment after a certain period. Let’s say you invested in stocks worth $100. After one year, if these stocks are worth $150, then you made $50 or a rate of return of 50%.

This means you have to choose where to invest your money. The higher the risk, the higher the return, if you make money. In banks, the rate of return is very small, but you have the confidence in knowing that your money is safe and insured. There are other investments like the Forex which can give you higher rate of return, with a low rate of inflation, but you need to be on top of your game all the time, because a foreign currency can turn 180 degrees at any given moment.

As you can see, inflation (and taxes) will eat into your profits, especially if you do not invest it. If you need advise, there are so many money managers and fund managers that are affiliated with reputable banks and investment firms who can help you find a venue for your money.

However, relying on them 100% is always not a wise choice. You will still need to keep checking on them for updates. There have been instances when fund managers have run off with their clients’ money – even in highly dependable firms. It happens, and one way you can avoid losing everything is to invest your funds in different avenues. It’s called hedging in some circles. You should find our more about it.

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QUOTE OF THE DAY:
“A safer way to hedge against inflation is to buy Treasury Inflation.” – Andrew Lucas

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CONCLUSION:
Find a way to save money, but to be financially savvy, you should consider investing your savings so that it will make money for you.

Inflation Rate April 9, 2009

Shakti Singh Dulawat — Thu, 09 Apr 2009 07:54:00 +0000

Inflation for the week-ended March 28 has come in at 0.26% as against 0.31% a week earlier. The FY09 provisional average inflation is seen at 8.37% versus 4.67% year-on-year.
Meanwhile, inflation for week-ended January 31 has been revised to 3.98% versus the provisonal figure of 4.39%.

Here is last inflation rate.

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Can We Control Tuition Inflation?

Shakti Singh Dulawat — Tue, 07 Apr 2009 19:28:00 +0000

Tuition fees, whether in the primary, secondary, or tertiary levels, seem to always be increasing every year. What does this mean? How can universities and schools explain the constant increase every year? Are we to be always controlled by these institutions, and be at their mercy in our quest for higher education and learning?

Since 1960, the tuition rates in the United States has increased from 6 to 9% on the average. This is twice the general inflation rate of the country! It also means that college tuition will be twice as expensive every 9 years. If you are paying tuition now, then by the time you have children, and they are about to enter college, you have to be practically a millionaire to be able to afford to pay for their tuition fees. It’s either that, of make sure your child is eligible for scholarship or a student loan.

If you study the history of college tuition, you will see that the inflation rate of college tuition has nothing to do with the general inflation percentage of the country. It has been that way forever. Parents just dream of college for their children, and will find a way to raise the money for college from the time the child was born. This means that universities and colleges can sit on their laurels and wait for the applicants to start mailing in their forms…or can they?

Even if parents dream of college for their children, the economic downturn has led them to seek innovative ways to get their children into college. For some, it may be a grant or scholarship, others seek employment in universities to ease the financial burden on the fees, since in most universities, children of employees get concessions as far as tuition fees are concerned. Still others settle for a less expensive college – like a community college for the first two years before transferring to the college of their choice.

In other countries, you see students applying at universities far from their country because there are better opportunities and a chance to get a scholarship. There are so many ways to avoid or defray the cost of college tuition, but it still does not explain why there is such a high inflation rate.

Colleges have a huge overhead, and professors, teachers, and administrative costs are constantly increasing. Education is expensive, and for many, quality education in the Ivy League colleges are considered a luxury. The waiting line to enter these schools has not really decreased, even if the tuition rate is exorbitant. For many parents, it is the returns that the children get after graduating. They get first pick on the plum jobs, and even before graduating, have an offer to work for some of the top corporations in the country.

The tuition inflation may never really match the general inflation rate, it may only decrease during these times of economic problems. But teachers will want their raises and bonuses, expenses in running a university is escalating, and the general view is that if a university can delivery quality education, then it can charge a high tuition rate. Tuition inflation is a fact of life, and for private universities, there is not much anyone can do but grin and bear it.

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Understanding Inflation Rate

QUOTE OF THE DAY:
“You know college costs have gotten out of control when a 6% increase in tuition is considered good news.” – Sandra Block

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CONCLUSION:
College education is vitally important if you want to be successful in the business world today. Of course, there are people who have never graduated from college that have become highly esteemed and successful, but that ratio is just to small to gamble on.