con’t.

I realize that the preceding paragraph (in part 1) shows such a defeatist attitude so let me try to redeem myself and offer some enlightenment on the subject matter.

When prices rise steeply, there are two things we can do to combat the rising prices. The first thing we can do is to earn more. Rising prices is a natural economic reality; one can’t expect prices to remain constant as one can’t expect income to remain constant as well. Assuming inflation is at 5% but your income rose by 8%, you can actually counteract the effects of rising prices and still have some of your income left for you to either spend or save (I urge you to do the later) despite the higher cost. The simplest way to combat rising prices therefore, is to increase your income. I said it was simple, I did not say it is easy. Increase in your income will happen but the question is when? It usually takes time before your income registers some growth. If you are an employee, you will need to wait for a raise and most of the time, those raises happen towards the beginning of the year and that’s assuming your company is profitable. Since it is only April, you will have to wait for many more months before you can get some financial relief from the scorch of high prices. If you are in business, it also takes time for you to realize a higher profit margin – there are way too many variables for you to undertake before you can see an improved bottom line.

While you are waiting for your income to rise, you may want to pay attention to what you spend on. To have a better cash flow, you need to ‘make more money’ and ‘spend less money’. Curbing consumption, in my opinion (as if there are people who actually care to hear my opinion, haha!) is the most sensible way of combating inflation. A closer look at what you spend on and how you spend will be your best bet in battling the mystery of the vanishing purchasing power.  As many personal finance books will inform, as well as finance experts and even those self-proclaimed finance gurus will pontificate that there are two kinds of expenses: needs and wants. When we do try to reduce our spending, we often try to do so by cutting down on some of our needs because cutting down on wants seems to be more difficult. Why? Because spending on wants is pleasurable while spending on needs is a drag! To articulate (my friends say I ‘articulate’ too much) my point — do you know anyone who screams of excitement every time his Meralco bill arrives? If you know anyone who does, please bring him to a doctor and have him checked. On the other hand, do you know people who are ecstatic whenever their favorite store or mall is on a big Sale? I proved my point.  Cutting down on necessary expenses is not the wise thing to do; there is a reason why they are called necessities in the first place. Cutting down on wants, though harrowing to some is the prudent thing to do. I recommend that you list down all your expenses and I mean all – including those branded coffees that seem to be so addicting and those new fancy and costly milk teas everyone seems to be going gaga over lately. Once you have written everything you have expended on, start determining which of those are ‘needs’ and ‘wants’. Don’t try to fool yourself by trying to be coy and justifying your wants and masking them as needs. I once heard someone say that going to a salon is a need because if she does not look really good, she can’t sell enough life insurance, thereby the salon costs are really needs and not wants – yeah that sounds so right (I’m actually attempting to be sarcastic here).

… to be continued.

Inflation has been rising. Government says it is now beyond 4% and many institutions are saying that we can expect inflation to breach the 5% mark very soon. The government already conceded that it will miss its inflation target — what they are not saying is they are missing the target by a mile.  The other day, I passed by the gas station to get some unleaded fuel and told the gasoline attendant to pump me P 1,000 worth of fuel. For a cheapskate like me, that’s a lot of money to part but we all need to spend, whether we like it or not.  As I was watching the pump, I was surprised to see that my precious 1,000 bucks was only able to buy a little over 17 liters of fuel! The nostalgic in me reminisced about the bygone years where pumping 500 pesos was enough to fill my gas tank – oh the glory days! It’s not just fuel that reduced my purchasing power, the same applies whenever we buy groceries, pay for bills, eat at restaurants and the like.

From my perspective, I don’t think inflation is just at 4 to 5% — and my wallet agrees with me.

Just what is inflation? Investopedia defines inflation as “the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum.” In practical terms, it means that prices will rise according to the inflation rate over one year (per annum); if inflation is at 4%, a P100 per kilogram of Chicken today will cost P104 per kilogram next year.  Consumer Price Index or CPI is the barometer to which inflation is measured. In general, the consumer price index reflects changes in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or changed at specified intervals, such as yearly. The basket includes the most basic goods the average Filipino family consumes – general food items, utilities, oil, etc.

Alright, enough economic gibberish – no one wants to be reminded of the boring economics classes we had to take during our student days. Unfortunately, the ‘boring economics’ we all hate is pretty much the reason why we are all dumbfounded – trying to figure why the value of money in our wallets are shrinking.

Our knee jerk reaction to rising prices is always to be overwhelmed, and for a good reason. I’m not sure if this applies to other folks but here’s how I react whenever inflation is very high: disbelief, anger, frustration, blame, acceptance, indifference. I get shocked that prices goes up so fast so soon (like fuel); then I am annoyed as to why prices are going up such as external factors (middle east situation, financial crisis, etc.); I move on to being frustrated – frustrated at the government for not making the right responses, frustrated at myself for my microscopic income; then I blame the government for being inept and sometimes blame myself for missed business opportunities that would have cushioned the rising prices; I slowly begin accepting the harsh economic realities that life is as such and there’s really nothing I can do about it; finally, I move to being indifferent – after all, my ramblings will not bring prices down and I resign to the fact that there’s nothing I can do.

… to be continued.

Philippines to incur Php 300 Billion in deficit for 2009

· According to the Department of Finance, the Philippines will likely report a budget deficit for 2009 of below PHP300 billion ($6.56 billion).

· One of the reasons for the deficit is that the Bureau of Customs likely collected PHP50 billion less than it targeted last year.

· A smaller shortfall than the PHP57 billion initially estimated.

· The budget deficit data are scheduled to be released later this month.

Inflation jumps to 8-month high in Dec

· For December, The country’s inflation rate went to an 8-month high of 4.4%.

· This is due to higher food and oil prices.

· Bringing the average inflation for 2009 to 3.2%; still with in the Central Bank’s estimate of 2.5% to 4.5%.

· The increase in inflation rate is said to unlikely push the central bank to hike rates soon.

· The Bangko Sentral has set an average inflation target of 3.5% and 5.5% for 2010 and 3% to 5% for 2011.