Ugly effect of inflation on our purchasing power

 Inflation is the monster in the bag in our daily lives.

Based on such premise, inflation in Malaysia will double every 10 to 12 years. 

Say, we will to live for another 48 years that is around the year 2070. How much inflation would be and how much we would need to survive on a minimum income?

The more we delve into the past, the more we can see the future as expounded by Sir Winston Churchill.

Let us go back to 1990. In the year 1990 the price of a bowl of mee is 2 ringgit. Now in 2023 it is around 8 ringgit. So, for the span of 30 years the price of food increased by 4x.

Based on such premise, inflation multiply by 2x every 12 to 15 years with ceteris paribus whereby everything else remain constant. 

So, back to our projection from 2023 to 2070. That would be 48 years or 4 cycle of 12 years each. This means inflation is going to multiply by 16x.

So, the price of a bowl of mee which is 8 ringgit multiply by 16 would be 128 ringgit. Someone who need to survive on 2k ringgit per month, will be in need of 32k per month to survive in 2070.

However, this calculation is flaw and will not predict accurately as price of some of the goods and service we consume in life will not be elastic to inflation such as telephone bills, bank loans, house rental and medical bills and insurance . Therefore, we are partially safe from the ills of inflation due to time factors. 

Back to such scenario, it would be wise and prudence to divide the price of food and monthly expenses into half for 2070. Therefore we would need 16k ringgit per month to survive and a bowl of mee would cost us 64 ringgit per bowl. 

Making cash the worst investment. Therefore, it is advisable to invest more in asset class that fall under the acronym Grab, Ground, Gasoline, Gold, Gourd and Gun. 

But one thing for sure, inflation will show her ugly face and eat our saving if we cannot multiply our asset by 6 percent per year on average.

Why is this so? This is because if it take 12 years to double on inflation, this means, inflation would grow at a rate of 6 percent per year making investment that earn less than 6 percent per year negative return if inflation is taken into account.

That's why the best is to leave our future in the hand of God and build treasure in heaven where moth cannot destroy and thieves cannot steal, whereby where our heart is there is also our future. 

Charlie Munger, said that if we know where we are going to die and we stop going there, we will definitely going to be safe. 

Moral of the story: Fear God the begining of wisdom and Fate favor those who are prepared. 

In God we trust, 

God bless you, 

Dr. Lion.