Indonesia's Inflation Crisis...Malaysians should learn from it!

In an article from The Star dated 12th of July 2013, our closest neighbor Indonesia is currently facing a mounting inflation crisis largely due to the fuel hike implemented by their government. A snippet from the article as shown below indicates that inflation in Indonesia would rise to about 7.5% on an annual basis due to the fuel hike.

Inflation rate as we all know is a measurement of price increase/decrease of consumer products and services. One of the key item from the list of consumer product is of course fuel. Hence any movement of the fuel price in terms of reduced subsidy or a hike in pricing would have a direct effect towards the inflation rate of a country. 

In Indonesia's case, the reduction of fuel subsidy was inevitable in a effort to reduce the country's debt as highlighted in this post from English.news.cn. 

Despite strong violent protest by students and workers from the lower income group, the fuel hike had to carried out in order to save guard the country's debt from spiraling further down and to prevent further downgrading of the country's credit rating.

Would Malaysia face the same problem in the near future?

Yes, a definite yes! The question is when would the inevitable arrive?

In an older post entitled "How Does GST, Subsidy Cuts, Credit Rating affects us as Malaysian?", I've clearly stated that our countries debt level is at a worrying level. What we would eventually face is what our neighbor, Indonesia is currently facing. Two key remedial strategy must be implemented by the government:

1. Goods and Service Tax (GST)

2. Subsidy Cut - in other words reducing/removal of subsidy for key items such as:

The implementation of subsidy cut would then increase the price of consumer products and ultimately inflation will rise. A simple flowchart below illustrates the impact Malaysians would eventually face:

Summary

If our neighbor Indonesia is already facing this problem, what reasons can we come up with to say that Malaysia would not face the same problem? Although we can't change the economic outlook, we can still safeguard the value of our money/savings through investing in investment vehicles that can potentially generate returns which are higher then the inflation rate. Taking for example Indonesia's inflation rate of 7.5% as a benchmark, do you think that the money sitting in your Fixed Deposit Account (4%), Savings Account (0.25%) or even your retirement fund (5.5%) would be insufficient to battle inflation?

You can choose to ignore what you've just read by brushing aside the facts, but regret not when the actual scenario befall upon you. Reality bites, so live with it!

Cheers and Happy Investing!

P.s : I've been an ardent supporter of utilizing unit trust (UT) investment for my retirement. I believe UT being a passive investment is capable to generate returns that are higher then inflation and at the same time gives me the freedom to pursue my interest as well as career. If you like to know more about UT investing from my point view, feel free to drop me an email at shanesee03@gmail.com 

P.p.s : Select the best unit trust to invest in by reading the Equity Malaysia category of this post : Top 10 Best Performing Unit Trust Funds As of 10th July 2013

If you like reading this post, it would do me a great favor by:
1. Sharing this post on your Facebook!
2. Liking my Facebook Page
3. Subscribing to me. See the "FOLLOW MY ARTICLES VIA EMAIL" section located at the top left? Just key in your email and click "Submit" to receive the latest post from Invest Made Easy via email.