The table below shows Malaysia inflation rate since 2003.
| Year | Inflation Rate (%) |
|---|---|
| Average | 2.18 |
| Median | 2.10 |
| 2003 | 1.1 |
| 2004 | 1.4 |
| 2005 | 3.0 |
| 2006 | 3.6 |
| 2007 | 2.0 |
| 2008 | 5.4 |
| 2009 | 0.6 |
| 2010 | 1.7 |
| 2011 | 3.2 |
| 2012 | 1.7 |
| 2013 | 2.1 |
| 2014 | 3.1 |
| 2015 | 2.1 |
| 2016 | 2.1 |
| 2017 | 3.8 |
| 2018 | 1.0 |
| 2019 | 0.7 |
| 2020 | -1.1 |
| 2021 | 2.5 |
| 2022 | 3.3 |
| 2023 | 2.5 |
*My own compilation with Consumer Price Index data from Department of Statistics Malaysia.
Why are we concerned with the inflation rate? Everyone complains about the increasing cost of living every year. That is the effect of inflation. It directly affects our purchasing power. You may feel that the inflation rate above is too low as it is computed from a basket of items and services determined by the government.
There is a concept known as personal inflation rate. This is an individualised inflation rate based on what you actually purchase or use. Nonetheless, this rate can be hard to compute as we seldom keep track of the prices of the items and services we purchase. So, it is easier to use the official inflation rate. But I personally assume a personal inflation rate of 4% per annum, almost double from the official rate.
If the inflation rate is higher than the return you get from your money, you are essentially losing money. Thus, if you put all your money in bank savings accounts which earns less than 2% per year, you are earning negative return. If you put your money in fixed deposits that earn 3+% per year, you might be able to earn some meagre positive return. However, if your personal inflation rate is the same as mine (4%), you are in fact still losing money.
That is why we should put our money to work by investing. Although investment entails risk, with proper asset allocation, we should have a positive return which would beat inflation in the long term. I do not deny that there might be high volatility in the short term, but in the long term, the result should be satisfactory. If you just put all your money in the bank, although it is very safe, you are losing purchasing power due to the eroding effect of inflation.
Are you interested in investing to beat inflation? Just leave your details by clicking the button below and I will contact you to determine if we would be a good fit for each other.
Disclaimer: This post is for informational purpose only. You should use judgment and conduct due diligence before taking any action or implementing any plan suggested or recommended in this article.
