Posts tagged with "inflation" - page 2
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4% Rule In Indian Context
I have already written a few posts on 4% rule, but some readers were not sure if it really works in Indian context. We don’t have the equivalent of the Trinity study (which resulted in the 4% rule) done here in India. Or at least I am not aware of one. For those of you who don’t know the Trinity study, I will brief you on it. Basically the study found that if you withdraw 4% from your retirement account every year after accounting for inflation your retirement fund should last 30 years or more. But the study was done in the US using bond, inflation and equity market data from 1925 to 1995. It is really not a rule as much as a thumb rule. While I don’t have the luxury of such nice data for India, in this post, I will attempt to use some crude data loosely based on the same notion.
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Impact Of Repo Rate Hike
In the previous post we discussed about inflation and how it can be tamed by central banks. One of the ways to reduce inflation is by reducing the amount of money people spend. This can be done by increasing the rate of interests on loans or by making safe investments so attractive that people will save money in banks instead of spending on things. Think of it this way – if your home loan EMI increases, you will have less to spend on other things right? Alternatively, suppose you don’t have any loans, but you are a saver. Then if the FD interest rate went up from 5% to 6%, you might save more instead of spending and causing inflation. That was a very simplified explanation of course, but lets just go with it.
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The Curious Case Of Inflation
RBI has finally increased the repo rate after inflation has been stubbornly high for more than three quarters. I was expecting this to have happened sooner, and yet they were faster than the US central bank. Inflation in the US has been out of control for a very long time now and yet the Fed has not taken any action. Their reasoning for the longest time has been that the inflation is transitory and will eventually come down without any rate action. Why is it transitory? The explanation was that the inflation was due to decrease in supply and not due to increase in demand and when the supply catches up with the demand the inflation should disappear. So far at least that was not the case and Fed has been printing money and keeping the interest rate low. What a mess.
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TV Inflation
It is the season of inflation. Lately we have been hearing a lot about inflation and I have been writing a lot about it too. Still if you thought that wasn’t enough, here is one more for you :). Normally I don’t calculate inflation of anything unless I have at least 10 years worth of data. As I look back, I have as much data on my TVs, so why not calculate the inflation of a TV? Remember that inflation should be looked at holistically. Knowing inflation of one device like TV or laptop does not really makes sense, but all these inflations add up to your final inflation number. It is just a fun exercise and lets keep it that way.
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What Type Of An Investor Are You?
Sensex is where it was some 7 months ago. We have escalating war on one side and growing inflation on the other side as no nation is immune to the ill effects of loose monetary policy and facing the after effects of stringent COVID restrictions. Sri Lanka is defaulting on its external debt. A nation default on its debt obligation is such a bad news. None of these are good signs and yet the stock market is happily moving forward. What should an investor to do in this situation? The answer may not be quite as exciting as one would think. It is quite boring and you probably already know what I am going to say. Just stay the course, follow your goals, maintain your asset allocation blah blah.
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Property Tax Inflation
It has been slightly over 10 years since we moved to the home we currently reside in. So I thought we should have enough information to calculate the property tax inflation. Why not write a short post about it? In the past I have written a few articles covering inflation of various material goods we posses. This is one more of them. Remember that calculating inflation of individual items like this does not make much sense unless the expense is a major part of your annual expense. For example, if the inflation of the price of a pen is 20% but the price of the pen is Rs. 20, it does not matter how big or small the inflation is, it will not affect your total inflation (for a long time) because Rs. 20 is such a small amount compared to your annual expense. I am calculating inflation just as a fun exercise.
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Should You Be Worried About Inflation
For the past few months we have been hearing about the increasing inflation in the US. Is it possible that the same could happen in India and should we be worried? First lets try to understand the severity of inflation in the US. The inflation number in the US used to hover around 2% for the longest time. But it has shot up to as high as 7.9% in February 2022. That is almost 4 times as high as the average! That does hurt. It is a number not seen in 40 years! In India, the inflation is still not that high, so we don’t have to worry as much as our friends over on the other side of the world. Still, it is always useful to do a thought experiment and see if it is a topic of concern.
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Laptop Price Inflation
Last time I did a review of my electricity bill inflation. Conveniently I was tracking the utility bills since 2012 so I had enough data. That got me thinking. May be I can find other expenses for which I have long enough data to calculate inflation. Remember, inflation is different for different products. For example, your food inflation will be different from your medical bill inflation, or electricity bill inflation etc. So you will need to find the inflation for each category of expenses. Since I recently purchased a laptop, I thought if I can dig up some old bills, may be I can calculate my laptop expenses inflation. Which is exactly what this post is all about.
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Real World Application of 4% Rule
I have not even completed 4 years into retirement, yet I wanted to check how the 4% rule is working for me. Please keep in mind that this is such a short time in retirement that we can’t make any conclusions about whether 4% rule really works in this day and age at all in India. We will only know its usefulness in a much longer duration like a decade or so. This exercise is to understand how a 4% rule will work with and without the 20% buffer I usually talk about. Lets get started.
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Our Real Power Bill Inflation
In the last post I showed you that the electricity inflation over the last 9 was around 7% in Bangalore. Of course the inflation depends on how many units you use. If you are in the lower or higher slab than me then perhaps the inflation may be different for you.
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