Everything you need to know about inflation

What is Inflation?
Inflation measures the rate at which the price levels of goods and services in the economy increase over time. It is the decrease in purchasing power of a given currency over time, as more money is needed to buy the same product compared to the past.

However, price levels of goods and services can also go down. It is called deflation.

When deflation happens, the overall price levels of goods and services decrease over time. It increases the purchasing power of a given currency, as less money is needed to buy the same product compared to the past.

Main causes of inflation
Cost-Push Inflation: It happens when the prices of goods and services increase as production costs (e.g., raw materials, transportation, and salaries) go up.
Demand-Pull Inflation: It happens when there is a vast increase in demand for certain goods and services. People are more than willing to pay a higher price for the products, which drives the prices up.

How is inflation in Singapore measured?
n Singapore, inflation is generally measured by consumer price inflation (CPI).

The CPI examines the general price levels in Singapore and is released every month by the Singapore Department of Statistics (DOS).

The graph shows that the CPI for Feb 2022 rose 4,3% year on year compared to Feb 2021.

CPI Categories
The CPI measures consumption expenditure. More specifically, it measures the weighted average price of a fixed basket of goods and services consumed by an average household in Singapore headed by Singapore Citizens or Permanent Residents (PRs).

The basket of consumer goods and services can mainly be broken down into 10 expenditure categories according to the Classification of Individual Consumption According to Purpose (COICOP). The weights of the items are determined by the expenditure pattern of an average household in Singapore.

How does inflation rate affect you?
Although the CPI is a good gauge of consumer price inflation in general, it may not be constructive for everyone. Individuals' spending would most likely differ from the average family in Singapore.

When it comes to budgeting, whether for daily consumption or retirement, the headline inflation rate (CPI) is not what you should be focusing on.

Instead, you should look at the latest CPI reports and look for the categories that affect you the most.

What can you do to hedge against inflation?
A good way to hedge against inflation would be getting a healthy pay raise every year.

Starting to invest is another way to beat inflation. However, please keep in mind that you bear the risk of losing your capital when you invest. It would be best if you read up to fully understand what you are getting into before investing.

Disclaimer
Moomoo is a trading platform offered by Moomoo Inc. In Singapore, capital markets products and services on moomoo are offered by Futu Singapore Pte. Ltd. regulated by the Monetary Authority of Singapore (MAS).

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