Personal Finance | Article
Are You Ready for the Inflation War in Brunei?
by Lionel | 15 Dec 2022 | 4 mins read
Inflation is this nine-letter bad word that’s on everyone’s lips these days. From the United States and United Kingdom to Philippines and Singapore, prices of almost everything in our daily lives are going up.
Here in Brunei, the price of cooking oil has risen 25.7%, meat by 12.8% and rice by 4.9% compared to last year according to the Department of Economic Planning and Statistics at the Ministry of Finance and Economy.
Even the popular fast-food chain, Jollibee couldn’t escape the impact of inflation this year. The chain best known for keeping prices low officially announced price increases from 1 July 2022 due to rising cost of raw materials. The C4 value meal of 3pcs Chicken Strips with Rice & Regular Soft Drink went up to B$4.30. Soft drinks have also gone up in price from B$1 to B$1.90.
We decided to dig deeper into the inflation conversation and share what it all means to you and your finances.
Let’s start with “What is inflation?”
The International Monetary Fund or IMF describes Inflation as “the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country”.
Basically, everything you buy becomes more expensive as time goes on. Or another way of looking at it, your dollar is worth less and less over time because your dollar can’t buy as much things as it used to. As an example, B$1 can buy you two packets of nasi lemak 20 years ago whereas B$1 can only buy you one packet today.
Theoretically, inflation can be good for the economy when prices increase at a steady rate each year. But in 2022, we’re seeing high inflation rates that has made our daily living a lot more expensive in a short span of time.
How much inflation is there?
The inflation rate in Brunei averaged 0.81% from 2007 until 2022, but it reached an all-time high of 4.50% in August 2022. Brunei’s overall CPI in September also grew by 4.3% year-on-year. This is the second highest hike after August in at least a year.
Where did all this Inflation come from?
Inflation or overall price increase is triggered by cost-push factors and demand-pull factors. The increase in the cost of Jollibee’s raw materials is an example of a cost-push factor that triggers inflation. A demand-pull factor is when consumers are willing to pay more for certain goods and therefore their demand is “pulling” up prices.
How does inflation hurt your savings?
An increase in inflation from 1% to 3% means a 45.8% fall in your retirement savings over thirty years. Using the Employees Trust Fund (TAP) example, your B$400,000 retirement savings is reduced to B$216,800.
A 3% annual inflation rate will also reduce your purchasing power by almost 60% over thirty years. Therefore, your B$1 can only buy 40 cents worth of goods.
The Inflation War
Fans of Walt Disney’s Avengers Movies will recall Thanos’ search for the 6 Infinity Stones. By placing them into the Infinity Gauntlet, he can make right the universe by halving its population, thus triggering the Infinity War.
Applied to real life, these stones represent the 6 asset classes of Cash, Bonds, Stocks, Real Estate, Commodities and Cryptocurrencies in an Inflation Gauntlet held by each Central Bank.
A central bank is basically a country’s government organisation that manages and controls that country’s money supply. The central bank of Brunei, for example, is the Brunei Darussalam Central Bank (BDCB).
Central Banks have started an Inflation War with their Inflation Gauntlets. Instead of half the world’s population disappearing, half of the money that’s in the economy may disappear at the snap of their fingers.
And there has been a lot of finger snapping this year with the US Fed raising interest rates, which both directly and indirectly triggered Brunei’s Inflation Gauntlet, thereby creating a larger black hole in our wallets.
We end up with less savings in order to pay for the higher cost of food, housing and transport.
The Inflation War is undoubtedly here in Brunei. It is already brewing on our roads, in our supermarkets, our restaurants, our workplaces and our homes. You’ll be amazed how little your B$50 dollars can buy these days.
You may start considering downsizing and find new ways to diet simply by looking at the price of food. If you’re thinking of starting a family, inflation is going to make you think twice. It may transform many of us into cheapskates.
And there’s no escaping inflation as long as you have basic needs, a job, a business, a mortgage and/or children. In a worst-case scenario, this inflation war can plunge Brunei into a prolonged period of instability.