The above titled write up is quite relevant in the present scenario of inflation and price rise. It is to be juxtaposed with the big advertisements in Indian newspapers given by the govt comparing the price of LPG in neighbouring ountries of Sri Lanka,Bangladesh etc.I found it ridiculous , as a graduate comparing his better knowledge with that of a kindergarten kid.
In this contex the following write up in another site has relevance.
QUOTE
The inflation heat is on for the consumer. The
country's food inflation rose to 16.90 per cent for the week ending June 12
(on a year- on-year basis), higher than the previous week's 16.12 per cent,
according to the government data released on June 24.
A day later, the Ministry of Petroleum and Natural Gas raised kerosene
prices by Rs 3 per litre, petrol by Rs 3.50 per litre and diesel by Rs 2 per
litre. Even liquified petroleum gas (LPG) got costlier by Rs 35 per
cylinder.
Experts say inflation may see an immediate upward impact of around one
percentage point due to fuel price hike. And a growing threat of inflation
will mean that the Reserve Bank of India (RBI) is also expected to hike
interest rates in the July 27 monetary policy review.
In other words, there will be a hike all across the board, in terms of
prices and loan rates. And the worst part, returns from investments will
fall. Here's how. The economic meaning of inflation is "general and
progressive rise in prices". Which means it continuously affects us.
Let's understand this with an example: The cost of a masala dosa in 1987 was
Rs 3.50. In 1997, it costed Rs 14. If the rise in prices continues at the
same rate, the dosa would cost Rs 224 in 2017. Similarly, the cost of a
Colgate toothpaste in 1987 was Rs 8.05. It was Rs 18.90 in 1997.
At the same rate of progression, we will have to pay Rs 104 in 2017. All of
us have witnessed this slow, but steady increase in prices, often wondering
if our earnings will be able to bear the burden in the long run.
That's not all, as an individual, there are four pillars of finance: Assets
(investments), liabilities (borrowings), income and expenses. And they all
get hit by the dreaded 'inflation'.
*RETURNS *
Assume we are generating returns (in percentage terms) of 6, 20, 12 and 25
from debt, equity, gold and real estate, respectively. If the rate of
inflation in the system is 7 per cent, our real rate of return from debt
will be (in percentages) minus one, from equity, 13; from gold, 5 and from
real estate, 18. Thus, inflation affects all our investments.
During inflation, the rate of interest in the economy rises. Therefore, our
rate of interest on borrowing will rise. Consequently, our liabilities
increase. At the same time, the value of the rupee depreciates and the
basket of goods that can be purchased with the same budget falls
dramatically. While we cannot escape inflation, we can try and reduce its
impact on us.
For instance, we should invest in assets which can generate returns higher
than the rate of inflation. These are equity, gold and real estate. However,
these asset classes are highly volatile. So, we should focus on our
financial goals. For those likely to take place in the next two to three
years, we should invest in debt-based instruments. For long-term financial
assets, consider equity, gold, real estate, etc.
As far as possible, avoid borrowing. However, if there is a loan, get out of
it as soon as possible.
*EXPENSES*
Expenses can be tackled. Broadly, there are two categories, mandatory and
voluntary. Within each, there are fixed and variable expenses. Mandatory
fixed expenses like school fees, house rent, etc. Next, mandatory variable
expenses like grocery, medical and healthcare expenses, etc. There is no way
to avoid mandatory expenses.
In case of voluntary expenses, again two categories. Voluntary fixed
expenses such as gymnasium fees, club membership, etc. Voluntary variable
expenses include eating out, vacations, etc. While inflation is rising, we
should cut the latter and when renewal time comes for the former, reduce or
stop these.
Even after controlling voluntary expenses, if we struggle to make both ends
meet, than a step-down process. Such as transport expenses to go to work, a
mandatory variable expense. One extreme is to go to work in a
chauffeur-driven car. Another extreme is to walk to work. In between are
self-driving, car pools, public transport, etc.
Find the most suitable. Invariably, we focus too much on risks which are
transparent, like volatility in the equity market, illness in the family,
etc. A non-transparent risk like inflation gets ignored. Because we cannot
see the impact of inflation on our finances, it does not mean this does not
exist. It takes a silent toll.
*The writer is a certified financial planner.*
UNQUOTE
[FONT="]Link: Kerala friends കേരള കൂട്ടുകാര് | Google Groups[/FONT]
[FONT="][/FONT]
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Tomorrow the opposition parties have called for a ntionwide bandh protesting price rise...!!!!!!
Greetings
[FONT="][/FONT]
[FONT="]
[/FONT]
In this contex the following write up in another site has relevance.
QUOTE
The inflation heat is on for the consumer. The
country's food inflation rose to 16.90 per cent for the week ending June 12
(on a year- on-year basis), higher than the previous week's 16.12 per cent,
according to the government data released on June 24.
A day later, the Ministry of Petroleum and Natural Gas raised kerosene
prices by Rs 3 per litre, petrol by Rs 3.50 per litre and diesel by Rs 2 per
litre. Even liquified petroleum gas (LPG) got costlier by Rs 35 per
cylinder.
Experts say inflation may see an immediate upward impact of around one
percentage point due to fuel price hike. And a growing threat of inflation
will mean that the Reserve Bank of India (RBI) is also expected to hike
interest rates in the July 27 monetary policy review.
In other words, there will be a hike all across the board, in terms of
prices and loan rates. And the worst part, returns from investments will
fall. Here's how. The economic meaning of inflation is "general and
progressive rise in prices". Which means it continuously affects us.
Let's understand this with an example: The cost of a masala dosa in 1987 was
Rs 3.50. In 1997, it costed Rs 14. If the rise in prices continues at the
same rate, the dosa would cost Rs 224 in 2017. Similarly, the cost of a
Colgate toothpaste in 1987 was Rs 8.05. It was Rs 18.90 in 1997.
At the same rate of progression, we will have to pay Rs 104 in 2017. All of
us have witnessed this slow, but steady increase in prices, often wondering
if our earnings will be able to bear the burden in the long run.
That's not all, as an individual, there are four pillars of finance: Assets
(investments), liabilities (borrowings), income and expenses. And they all
get hit by the dreaded 'inflation'.
*RETURNS *
Assume we are generating returns (in percentage terms) of 6, 20, 12 and 25
from debt, equity, gold and real estate, respectively. If the rate of
inflation in the system is 7 per cent, our real rate of return from debt
will be (in percentages) minus one, from equity, 13; from gold, 5 and from
real estate, 18. Thus, inflation affects all our investments.
During inflation, the rate of interest in the economy rises. Therefore, our
rate of interest on borrowing will rise. Consequently, our liabilities
increase. At the same time, the value of the rupee depreciates and the
basket of goods that can be purchased with the same budget falls
dramatically. While we cannot escape inflation, we can try and reduce its
impact on us.
For instance, we should invest in assets which can generate returns higher
than the rate of inflation. These are equity, gold and real estate. However,
these asset classes are highly volatile. So, we should focus on our
financial goals. For those likely to take place in the next two to three
years, we should invest in debt-based instruments. For long-term financial
assets, consider equity, gold, real estate, etc.
As far as possible, avoid borrowing. However, if there is a loan, get out of
it as soon as possible.
*EXPENSES*
Expenses can be tackled. Broadly, there are two categories, mandatory and
voluntary. Within each, there are fixed and variable expenses. Mandatory
fixed expenses like school fees, house rent, etc. Next, mandatory variable
expenses like grocery, medical and healthcare expenses, etc. There is no way
to avoid mandatory expenses.
In case of voluntary expenses, again two categories. Voluntary fixed
expenses such as gymnasium fees, club membership, etc. Voluntary variable
expenses include eating out, vacations, etc. While inflation is rising, we
should cut the latter and when renewal time comes for the former, reduce or
stop these.
Even after controlling voluntary expenses, if we struggle to make both ends
meet, than a step-down process. Such as transport expenses to go to work, a
mandatory variable expense. One extreme is to go to work in a
chauffeur-driven car. Another extreme is to walk to work. In between are
self-driving, car pools, public transport, etc.
Find the most suitable. Invariably, we focus too much on risks which are
transparent, like volatility in the equity market, illness in the family,
etc. A non-transparent risk like inflation gets ignored. Because we cannot
see the impact of inflation on our finances, it does not mean this does not
exist. It takes a silent toll.
*The writer is a certified financial planner.*
UNQUOTE
[FONT="]Link: Kerala friends കേരള കൂട്ടുകാര് | Google Groups[/FONT]
[FONT="][/FONT]
---------------------------------------------------------------------
Tomorrow the opposition parties have called for a ntionwide bandh protesting price rise...!!!!!!
Greetings
[FONT="][/FONT]
[FONT="]
[/FONT]
