Inflation is increased level of prices for goods and services. It is measured as annual percentage increase. The higher the inflation the less amount of goods your ringgit can buy. Let say inflation rate for Malaysia is around 4%. With RM1 today you can buy a pack of nasi lemak but a year later due to inflation the nasi lemak price will hike to ~ RM1.04 (as you would predict the nasi lemak guy/lady will increase the price to maybe RM1.10). This means your RM1 can no longer get you a pack of nasi lemak.Why is this so?
This is due to the imbalance between supply and demand. If too much money chasing after too few goods then the price will increase. As goods prices increase the companies need to increase prices to maintain their profit margins.
Inflation is not always a bad thing as long as we anticipate it and take precaution to avoid losing to it. Gold investment is a good way of protecting your wealth. As we know gold is widely considered an inflationary hedge. Meaning it provide protection against the decrease value of currency. Some investment can have a breaking down inflation hedge for example if we invest in stock market that gives return of investment of 3% but our inflation rate is 4%, then you are actually losing your buying power.
A common example used by my friends in Public Gold to emphasize the inflationary hedge of gold is the goat and 1 dinar example. Centuries ago the price of one goat is one dinar (4.25g gold). Now the price of goat is still one dinar.
Prepared by:
Wan Muhammad Yusri Bin Wan Alwi
Public Gold Authorised Dealer
PG00067660
SMS or Whatsapp: 012-8871702
wanyusri@gmail.com
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