Don't let inflation sneak up on you! Understand the types of inflation, and how to stay ahead of them in this article.
Lately, the cost of living has skyrocketed, and it has been hard for the average person to survive. According to Nairalytics, the annual inflation rate in Nigeria increased to 20.77% in September 2022 which is the highest since 2005. In turn, the cost of food, maintenance, and services have all accelerated as our money is not worth as much as it used to be.
What is Inflation?
Inflation is an economic situation where there’s an increase in the price of goods and services in an economy. Due to this hike, the purchasing power of a unit of money reduces, which means, one currency bill can only buy fewer goods.
Types of Inflation
There are three types of Inflation, and they are intertwined such that the occurrence of one leads to another.
- Demand-pull Inflation: In this case, the prices of goods and services increase due to high demand. For instance, if there is a limited supply of a product, merchants can make consumers pay more for it because of the frequency and quantity of its demand. Let’s say there is a shortage of baking flour, and since it’s an integral part of every baking process, bakers have no choice but to pay a higher price for it.
- Cost-push Inflation: Cost-push Inflation is the aftermath of demand-pull Inflation, where the cost of raw materials becomes expensive due to the high demand for finished products.
When business owners accept the higher costs, they make hard decisions to either satisfy their customers with lesser prices or make their profit margins remain the same by increasing the prices. A good example of this is when there is a sudden increase in the price of bread or any of your favorite snacks.
- Built-in Inflation: Built-in Inflation is the result of demand-pull and cost-push inflation. Every staff or worker purchases item that costs higher than usual. Since everyone is affected, employees tend to ask for raises in their wages or salaries to catch up with the new economic changes.
For employers not to suffer labor shortages, they must increase their staff’s wages or salaries. The process of increasing wages due to the high costs of goods and services is referred to as Built-in Inflation. See this as an instance of workers asking for a raise due to obvious reasons such as the increase in food items prices, transportation, utilities, etc.
How to Stay Ahead of Inflation in 2023
Every country experiences inflation, but 2022’s rate has been termed the highest in history globally. We can’t control the wave of inflation, so we must figure out ways to stay afloat. Here are the significant ways you can stay ahead of inflation:
Keep your Spending Organized
There is no better time to adjust to the new normal than now. Budgeting is the best way to track your expenses and curb excessive spending. You can make use of a spreadsheet, or use a budget sheet template — there are tons of them online. If you would like to click here to learn the ways to effectively budget.
Be Intentional With Saving
Irrespective of your earnings, there is no excuse to skip saving. It is no news that the local currencies are crashing. Between October 2022 to November 2022, the Nigerian Naira, for instance, went up to 850 Naira per 1 dollar. In an article by Businessday, Nigerians voiced their thoughts about hitting 1,000 Naira per 1 Dollar before the end of November 2022.
Therefore, it is clever to think long-term when saving. And the best way to do this is to save valuable currencies such as USD and BTC (the best-performing asset of the last decade).
You don’t need to bother about the instability of the economy. Here is an article on how to save in USD and BTC on Bitnob. Click here for a quick step-by-step guide.
Broaden your Income Options
Since we are not sure of the longevity of the high inflation, adding more to your income streams is a good idea. One of the ways to do this is to acquire a financially promising skill, and also gives you the luxury of options in your career. When you invest in skills, you can decide to switch to high-paying jobs or even have more.
The possibility of the inflation rate going down is quite uncertain. In one of CNBC's articles, there are assumptions that inflation will fall quickly and dramatically as it rose. But, this is not backed by data, just speculations.
The only obvious fact we all know is how inflation has been crippling the economy. To beat this surge, investing in long-term solutions is crucial, which is saving in valuable currencies. Click here to start your savings plan on Bitnob.
Found this article helpful, share it with someone you think might need this.