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Why the Surge in Inflation Rate to a 39-Month High of 4% in January is Bad News for Your Savings

With interest yields below the inflation rate, your money could be worth less after you withdraw them from the bank
By Pauline Macaraeg |

 

 

The Philippine headline inflation surged to a three-year high of four percent in January, up from the 3.3-percent growth last December. This is the highest since October 2014.

 

“The uptrend was primarily due to the higher annual increment in the heavily-weighted food and non-alcoholic beverages index,” the Philippine Statistics Authority (PSA) explained in its press release Tuesday, February 6.

 

High inflation rate means prices are increasing at a faster pace, making the purchasing power of the local currency weaker. When the value of a currency decreases, one of its effects is to erode the real value of savings and fixed-income investments.

 

In 2016, the effect of inflation could still be considered mild for investors. Though the 1.8-percent average inflation rate for the whole year was higher than savings deposit and Treasury bill rates, most investment instruments yielded higher returns, like term deposit facilities, overnight reverse repurchase agreements (RRP) and time deposits.

 

However, things started to get worse in 2017. Most returns of fixed-income investment instruments increased year-on-year, but the average inflation rate also hit a higher level at 3.2 percent. As a result, investment instruments still yielded lower returns than the average inflation, except for 28-day term deposit facilities.

 

Things turned even worse this January for investors, as the four-percent inflation completely eroded the yields of the most common investment instruments. This means investors are already losing more from inflation compared to what they are supposed to get from interest earnings.

 

Perhaps it’s time to consider other investment outlets that offer higher returns, though these may entail higher risks, too.

 

 

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Pauline Macaraeg is Entrepreneur PH's data journalist. Follow her on Twitter @paulinemacaraeg

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