I came across this posting on my fb wall and thought of correcting the very important impressions of people on “inflation”.
First thing first, the growth has been computed wrongly! The growth is meant to be a nominal or money worth. We shouldn’t be looking at it because, of course there is inflation! But measuring that growth is meaning less because if we try to do that, the growth of my height from 1973 to 2010 would be an astounding rate of 180cm/135cm = 133%!
It should be calculated on a compounding manner. The average annual compounding growth is therefore:
(1 + g )^37 = (Yr 2010 price) / (Yr 1973 price); *37 being the number of years between 2010 and 1973.
Here you go, the corrected version:
The annual growth for car and houses are basically around 5 – 6% a year but I must admit that these prices grew faster than the current inflation rate. But having said that, Malaysia has a good economic run during the eighties until the early nineties, therefore at those time the 5% inflation is still manageable for all. Rate of GDP on those times were double digits!
Secondly, everyone must remember that inflation is good if it is managed. Could you imagine that your salaries remained the same from 1973 to 2010? What’s your average compounded salary growth, go on try using the formula above!
*Just correcting enjoy and no worries!