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What happens to property market when inflation is always at 1 percent every year?

Posted in Malaysian economy and more, and Personal Finance

Most of my friends tell me that the inflation numbers published by the government is not reflective of what’s happening in the market. That was months ago and even years ago. I reminded them that inflation is not a number plucked out of the air but is based on a basket of goods. Of course everyone would have their own personal inflation since their basket of goods may be more expensive or cheaper. However, today (18 July 2018) a few friends forwarded the news about Malaysia having1 percent inflation and well, they are suddenly happy with this number. I wonder what has changed. Haha. Anyway, should we be cheering if we have a 1 percent inflation for a very long time? Say, for the next few years? Japan has an inflation rate of less than 1 percent but the Japanese government is targeting 2 percent. In other words, the government wants a HIGHER inflation than what appear to be a good thing, right? Here’s that news recently in BusinessTimes.com.sg: Japan inflation stuck at 0.7% in May, way below target.

Anyway, if inflation stays at 1 percent every year, these are the potential happenings in the property market. Property prices is not moving much or staying stagnant or even going down. We can say that this is positive to the potential home buyers since property price is no longer going up faster than their incomes. For existing home owners, this may not be a good news. It meant that the capital appreciation which usually happen in tandem with the inflation will also be low. This was a report by sekaiproperty for Japan’s property market. It said, “Japan’s housing market might be confusing for some people, where the average house price in Japan doesn’t show any meaningful changes. From Q1 to Q2 2017, overall residential property price in Japan shows 0.37% raise.” 

With inflation at 1 percent, it also meant that the demand for goods and services is not growing a lot. In brief, demand is only about equal to supply. Every company I know is aiming for growth in sales revenue which is by far higher than 1 percent but if demand is about equal to supply, I think at the end of the year, the sales revenue target will not be hit and the salary increments may no longer reach anywhere near the usual 6 percent. For advanced countries where the growth is no longer as fast as emerging ones, the typical pay rise may be 3 percent or lower. The U.S. had a projected 3 percent increment for 2018 and the year before, it was just 2.7 percent. Here’s that article in investopedia.com  Let’s not conclude whether this is bad or good but this is what’s happening when the growth is no longer as fast as previously.

High inflation is crippling to the economy. 1 percent or lower is well a bit too low for me. I prefer a manageable number, say between 2-3 percent would be ideal. Last year (2017), it reached close to 4 percent while in 2008, it was as high as 5.45 percent. Here’s that report. Our Bank Negara Malaysia (BNM) is ever vigilant in containing the inflation numbers. For example, if the inflation starts going up too fast, they may increase the interest rate to tamper with the above-normal demand. What happens if inflation stays at 1 percent for the next 12 months then? Well, I think it pays to look at the economic growth numbers. If our economy is still growing healthily but only the inflation is low, this is the best situation for us. In conclusion, I do not want high inflation numbers but I certainly do not wish the inflation numbers to be too low either. 1.8 percent for 2018 may be a good number, predicted by RHB Research. Here’s that report in malaysiandigest.com Happy following.

written on 18 July 2018

Next suggested article:  When FD rate is below inflation

 

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