The Upsides Of High Inflation

I frequent the Kovan wet market and made another trip there two days ago. I do not have a common face so I am quite recognisable as a bald yet relatively young chap. If you are at the market before 7am like me, there is literally zero crowd and the stall owners there like to strike up a conversation with me.

Interestingly, instead of me complaining about the high prices (3 chicken breasts and 4 drumsticks cost $23), they were the ones lamenting about inflation. I guess they were bracing me for the upcoming CNY price hike.  Really cannot imagine how much a threadfin fillet will cost in three weeks’ time.

In times like this, it is easy to focus on the downsides of inflation and how everyone’s lives become harder. But as we approach a new year, why not be more positive and turn the table on its head?

Let’s focus on the positives of inflation in this article.

Cheaper Asset Prices

Every year, there is always someone who lands his first job or begins his investment journey. Most quit after experiencing their first serious loss. In my humble opinion, it is easier to hang on for the long haul if you have some profits to show for your effort.

I definitely know of quite a few people who have sworn off investing after seeing a 30-50% decline in their portfolios in 2022. Sadly, for whatever reasons, they started investing a bit more heavily only in 2021, at the peak of euphoria.

However, if you start to invest during a bear market (which happened in 2022 and is likely to persist till 2023 at the very least), short-term declines are likely to be more muted and the odds of booking a paper profit is much higher in the medium term, which will provide some buffer for the next downturn if one is just a buy-and-hold investor.

This bear market was triggered by rising inflation after the Fed made some aggressive rate hikes ina an attempt to tame high inflation. Most asset prices are down by at least 30% from their peak. You can take your pick, whether it is individual stocks, REITs, ETFs or crypto, depending on your worldview and risk tolerance.

Higher Interest Rates For Savers

I know of one person who had $2m stuffed away in risk-free instruments during the middle of 2021. It was yielding around 2% which gave him a passive income of $40,000 in a year. He banked some profits from the market and wanted this amount to cover the core basics of his family’s expense.

And guess what? Right now, just a little more than a year later, this $2m is easily yielding >4% in the similar risk-free instruments. His passive income from this stash has doubled from $40,000 to $80,000.

Even if inflation is 50% higher for the basket of goods that he consumes, he is still two times better off from the higher interest rate environment, which is a direct result from the high inflation that we are experiencing today.

Tough Times Mould Tougher People

The past week was tough on me as the Mrs was down with fever (is still down) and the Baby was throwing a tantrum, refusing to drink or sleep much. Taking on the night shift, giving lessons and side hustling on this blog as hard as ever.

The Mrs has ample experience and knows that I generally shine in these moments, not when everything is rainbow and unicorns. Although I have a feeling that sometimes, she prefers the opposite. Oh well.

Similarly, it is also possible for one to thrive in this high-inflation method. So what if prices are rising, no problem. Just switch to (almost) equally good but cheaper substitutes. Whether it is cooking at home more, switching from restaurants to hawker food or taking public transport instead of Grab, I know many have kept to the same cost of living with hardly a drop in the standard of living.

For those who are semi-retired or even retired, it can also be comforting to know that your finances are holding up in such a difficult environment. If the cashflow works out well in both 2022 and 2023, it definitely will give greater confidence that your retirement plans will continue to be sound for the next few decades. Otherwise, there is always the option of finding some work to earn an income. Many have pleasantly found out that their skills and experience are still in high demand in this tight labour market.

As the saying goes, tough times do not last but tough people do.

Conclusion

As shown, high inflation is not all doom and gloom. In fact, I would think Singaporeans are much more sheltered from the negative impacts of inflation as compared to those in other countries.

Do count your blessings. And in the end, remember that champions always adjust.

Thanks for reading. Here’s wishing everyone a Merry Xmas this weekend!

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