Financial news: IMF chief economist says that inflation could remain high until 2025.
I hate inflation and at the same time I hope there is still some inflation
As someone with asset investments (real ones and not the speculative ones), inflation meant that the price of those assets would move upwards with every passing year. That’s good for anyone with an asset. At the same time, whenever I spend money, I noticed that prices have continued to move up. My favourite bowl of fish soup noodle used to be once upon a time RM5. Then, 10% up to RM5.50 and today, it’s RM11. I have no idea if the ingredients really did increase in price that much.
That’s the effects from inflation. When it moves higher, prices follow. So, while I hate inflation, I also hope there is some inflation. Else, my assets would not increase in price. That’s not good. If there are no price appreciation at all, then better not buy anything. In the end the whole economy stalls. Please remember that one reason we get salary increment is to that we could afford to live above the inflation rate. Otherwise we will be worse off every year with the same salary and yet higher prices for food, goods and services.
Here’s the latest news about inflation by International Monetary Fund (IMF)
Article in nst.com.my The underlying drivers of historically-high global inflation could persist until 2025, the International Monetary Fund’s chief economist told AFP.
IMF has raised its inflation forecast for 2023 to 7 percent. Prices around the world have surged since the rapid reopening of the global economy after the Covid-19 pandemic.
Pierre-Olivier Gourinchas the IMF chief economist said this about inflation. “It probably won’t be until the end of 2024, maybe into 2025.”
“The persistence of core inflation means that central banks may have to keep their interest rates higher for longer,” he said.
Gourinchas warned that there may be other financial institutions like SVB that are over-exposed to interest rate risks, which could cause problems if rates stay high while central banks fight inflation. Please do read the full article here: Article in nst.com.my
Can we afford inflated inflation?
I believe if the whole world is suffering from a higher inflation, Malaysia will not so special to escape from it. This is why current subsidies such as that for petrol or even toll is unlikely to be removed but the restructuring of the subsidy from a general one into a more targeted one would now be happening as soon as possible. 7 percent, if it happens is very high. Imagine spending RM30,000 per year on goods and services. It will now be an extra RM2,100 per year.
Someone spending RM30,000 per year may have an income of RM45,000 per year. Could the increment be an amount which is higher than RM2,100 increase due to inflation this year? Assuming it’s 5% for a salary of RM45,000 the increment amount is RM2,250. This amount is not yet deducted for taxes. So, for someone in this scenario, the quality of life for 2023 may be almost the same or lower than 2022 but unlikely to be better. This is why countries want to tame inflation and this is why we say a good investment will be a great hedge against inflation.
By the way, negative inflation (aka deflation) is not considered great for a country yeah
This is what International Monetary Fund says about negative inflation. “Although high inflation hurts an economy, deflation, or falling prices, is not desirable either. When prices are falling, consumers delay making purchases if they can, anticipating lower prices in the future. For the economy this means less economic activity, less income generated by producers, and lower economic growth. Japan is one country with a long period of nearly no economic growth, largely because of deflation.” Read the full article here in IMF’s website.
Hopefully the prediction of 7 percent does not come true 100 percent yeah. Hopefully just half or lower than half. Happy wishing for it everyone.
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