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Inflation

A general increase in prices and fall in the purchasing value of money.

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COVID-19

Inflation

Economics

SeedlyTV S2E01

How will inflation rates be affected by covid-19?
Cedric Jamie Soh
Cedric Jamie Soh, Director at Seniorcare.com.sg
Level 9. God of Wisdom
Answered on 20 Apr 2020
Covid19 is causing Central banks all over the way to do even more quantitive easing, which means buying back bonds and releasing more money into the system. More money means higher inflation... your money is getting less and less value. unfortunately, inflation is a lot more desired than deflation, so yeah at least its inflation. I will still prefer to keep cash at this time though, for opportunities. (which is partially why central banks wants inflation, they don't want public to hoard their cash)
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Inflation

Education

Is there any sources for the prices of food over time and public transport?
Lok Yang Teng
Lok Yang Teng
Top Contributor

Top Contributor (May)

Level 9. God of Wisdom
Answered on 16 Feb 2020
You can take a look at the Consumer Price Index (CPI) which measures a weighed basket of goods that a normal resident will consume over a year and how the price changes over time. I think an index for just 'food' or 'public transport' is harder to find. 'food' is very subjective (raw/cooked?, local/other culture cuisine?, hawker centre/restaurant?) so I dont think there will be such data. As for 'public transport', you'll also need to account for different age groups/distance/time/mode of transport/transit, I think there's data out there, just need to consolidate.
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Insurance

Whole Life Insurance

Inflation

Critical Illness (CI)

How would inflation affect the cash value of Whole Life Insurance?
Hi anon, Sorry, using desktop to view as I can reply more efficiently here. I can't see your full question at the moment, but try editing your question and removing the "less than" and "more than" signs. Then I'll be able to provide an updated response.
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Whole Life Insurance

Insurance

Inflation

Critical Illness (CI)

How does inflation affect the CI payout benefit in WL?
Hi anon, If you need 100K CI cover with inflation hedging over time, the accumulated cash value (while not guaranteed) will act as that inflation hedge. I ran a sample plan from an insurer for my own age profile to check the numbers, with late stage CI cover build in. Paying $2574 for 25 years, with $100K cover and no multiplier in effect, 40 years later, the benefit will be $212K with a 4.75% projection, and my IRR calculations have the figure at 4.3% yield. (3.25% figures will have the yield at 2.38%). I'm basing the yield/returns on my cashflow and not what $100K will be worth in 40 years. This is reasonable in my opinion because - I only pay when I'm working - My coverage after 40 years is a decent sum - My coverage will continue to compound at least till I claim To complete the analysis, $100K now is actually worth $216K 40 years later at 2%. So I suppose you could say that in my example, the plan barely kept pace with 2% inflation. However, never forget that unless you can conjure $100K immediately, your risk is greater in the early years of your working life, so there is a purpose to the plan. Now, about being covered during working years. That's a must. However, even in your retirement years, would you rather dig into your own savings in the event you need a cash injection due to illness, or would you rather have a payout from a policy? For death coverage, if you are no longer around, and your liabilities are paid off, then there's no real need for cover (i.e. when you've retired). So a term plan to cover death is always very cost effective. But when we talk about critical illness, you might be financial strained if something happens in your golden years, and having a payout will ease some of that strain.
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Investments

Inflation

Shouldn't the government's goal be to seek to make inflation 0%, not 2%? I don't understand why they want prices to appreciate, won't that be bad for everyone?
Kenneth Fong
Kenneth Fong
Level 5. Genius
Updated on 04 Dec 2019
That's a good question! Shouldn't the government be reducing inflation to 0%? That way, we won't have to spend so much money on stuff what! Well... Yes, and unfortunately, No. I'm going to explain why inflation is important using something we're all familiar with: ice cream. ! TL;DR: Why Is Inflation Needed In Our Economy? Many economists, businessmen, and politicians believe that inflation, or the gradual increase of prices over time, helps keep businesses profitable and prevents consumers from simply waiting for lower prices before making purchases. On the other hand, rising prices also makes doing stuff like saving money harder. It causes individuals to engage in riskier strategies in order to increase or just to maintain their wealth. And as with anything that is remotely linked to the government, people are sure to suspect that inflation is just an excuse for some businesses or individuals to benefit at the expense of others. Defining Inflation Imagine that it's after school. And there are 10 kids who all love ice cream. The ice cream uncle standing outside school, only has 5 servings left in his cart. And he is selling them at $1 each. Each kid has $2 in hand and all of them want to have ice cream. The enterprising uncle realises that he can get more for his ice cream so he jacks up the price to $2. This $1 increase is a result of Demand Pull Inflation or excess demand of a scarce good. The next day, the uncle heads to the ice cream factory to get a restock of ice cream. The supplier informs him that milk prices have increased, so he is selling 10 blocks of ice cream at $100 instead of $80. The ice cream uncle knows that he gets 200 servings of ice cream from 10 blocks. And this $20 increase means that if he wants to make the same profit, he must now sell his ice cream at $1.10 instead of $1. This is a result of Supply Push Inflation , which is caused by a substantial increase in the cost of important goods or services where no suitable alternative is available. After all, he can't make ice cream out of water right? So bobian, he has to buy the product in order to make a living. Inflation In The Real World When everyone in an economy is expecting say... A 10% inflation, everyone adjusts their prices upwards by 10%. Suddenly your pint of milk costs $1.10 (from $1), your loaf of bread costs $3.30 (from $3), and your McSpicy meal costs... Well, you get the picture. This was EXACTLY what happened in the States during the 1970s where everyone expected double digit inflation due to high oil prices . In fact, people started factoring this inflationary expectation into their wages and prices of goods. Unfortunately, this expectation was allowed to develop and continued without significant economic growth which resulted in Stagflation . The result? Unemployment rates rose to an astronomical high and the US economy went into a recession. The world has learnt from this mistake though. So as a result, governments try to limit inflationary expectations by stating outright what the target inflation rate for the year is. This is why you'll notice that MAS makes a huge point every end of the year to announce what the target inflation rate for the next year will be . It'll usually be a sustainable and healthy level of inflation. Not high enough to turn your cash savings into "banana money" (read: currency used during the Japanese occupation which became worthless due to inflation). ! But high enough to create a sufficient buffer before deflation happens. Asset Bubbles: The Calm Before The Deflation Storm Asset Bubbles occur when Demand Push Inflation causes assets to become overvalued. Let's say all the cool kids at school think that having an ice cream after school is the trendy thing to do. The uncle decides to up the cool factor by branding his ice cream with a trademarked logo and prices his ice cream at $10 (remember that it only costs him $0.80 to make one before the supplier increased the price of ice cream). It's all the rage amongst the kids, and every one at school is either begging their parents to get them this "branded" ice cream or are saving up their pennies just to buy one. One day, the popular kids are sick of the uncle's ice cream and refuse to even pay cost price for the ice cream. The asset (ice cream) bubble has just burst, and what follows is deflation . Cue (ice) screams Sorry, couldn't help it. The Problem Of Deflation Remember the 10 kids who used to buy ice cream from the uncle? They all still have $2 to spend, but they're no longer interested in spending it on ice cream because it's not trendy anymore. Instead, they're buying Korean instant noodles because that's what all their K-Drama idols are eating. ! On Monday, the uncle sells his ice cream at $1. The next week, he drops it to $0.90 because the kids still aren't buying. A month in, he drops it to $0.80 out of desperation. Some of the kids start to wonder if they should have ice cream, because it's cheaper at $0.80 now. But they also can't help but wonder if it'll drop to $0.50 and that's when they can have 2 ice creams for the price of one . "Shiok! Deflation is great! I can buy 2 ice creams sia..." Gerald, one of the kids, exclaims. A couple of months later, 90% of ice cream uncles in Singapore can't afford to keep their carts because they can't pay for the ice cream distribution license. Gerald's dad, who also happens to be an ice cream uncle loses his job. And guess what? Gerald now has no pocket money for ice cream or Korean instant noodles... Closing Thoughts Inflation is a 'necessary evil' that helps keep the world economy functional. If you're concerned about inflation eating up the value of your dollar, Seedly has a great piece written on why investing can help you to overcome inflation. Do check it out.
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