“I think there’s been some sort of a mistake with my order”, I whispered to the waitress. “I ordered the Cantonese Roast Chicken. You appear to have brought me a Roast Pigeon instead”. “That is the Roast Chicken!” she explained. And therein lies the problem. Inflation can show up in all sort of different ways. Sometimes it can be as clear as daylight. But at other times it could be a pigeon masquerading as a chicken on a porcelain platter in a restaurant. Rubbish prices It was only recently that the National Environment Agency (NEA) announced that garbage-collection fees would go…
“I think there’s been some sort of a mistake with my order“, I whispered to the waitress.
“I ordered the Cantonese Roast Chicken. You appear to have brought me a Roast Pigeon instead“.
“That is the Roast Chicken!” she explained.
And therein lies the problem.
Inflation can show up in all sort of different ways. Sometimes it can be as clear as daylight. But at other times it could be a pigeon masquerading as a chicken on a porcelain platter in a restaurant.
It was only recently that the National Environment Agency (NEA) announced that garbage-collection fees would go up by around 10%. The new charges will apply on the first day of 2017.
So it will cost all of us a little more to dispose of our rubbish, whether we happen to live in an apartment or in a landed property.
Household will also have to pay 5.6% more for electricity between January and March. The tariff increase is due to higher costs for natural gas.
So who says that there is no inflation in the system?
And it is not just in Singapore that inflationary pressures are starting to build. It didn’t exactly take much prodding for producers in the UK to put up prices.
The list of British manufacturers that have increased prices is growing steadily. At first it was Marmite that caused a stir by raising the prices for its popular spread.
But others soon followed. Typhoo, which is the UK’s third-largest tea brand, said prices would have to go up too.
Bird’s Eye, which is owned by America’s Nomad Foods and crisp maker, Walkers, which is owned by PepsiCo, is looking to raise prices by between 5% and 10%.
Of course, it can be argued that the UK is atypical because its decision to leave the European Union has triggered a precipitous fall in sterling. That in turn has driven up imports prices.
But the point is it doesn’t take much to trigger a price rise.
For many years we, the world, have benefitted from Chinese price deflation. In other words, China has exported deflation to just about every corner of the globe. That has benefitted consumers, enormously.
From the trainers we wear on our feet to the t-shirts we wear on our backs, prices have been kept in check, thanks to low-cost products from Chinese factories.
But even in China prices are now showing signs of rising.
In September, China’s consumer prices rose 1.9%, while producer prices rose for the first time in four years. It is only to be expected, as China’s economy moves from a manufacturing base to a more consumer-driven one.
Inflation is something that we need to be mindful of at all times, whether it is manifested as a pigeon dressed up as a chicken or a full-blown electricity price rise.
To ensure that the money we have stashed away doesn’t get eroded by rising prices, we need to invest it in inflation-beating assets.
That is not nearly as difficult as it sounds.
But it does mean that we have to rid ourselves of the idea that just keeping it in an interest-bearing account will be enough.
Over the long term, the stock market has been one of the best asset classes for beating inflation. Admittedly the stock market can be volatile in the short term.
But volatility is only an issue if you don’t know what you are doing.
Here in Singapore, there are myriad of companies that have pricing power. In other words, they have the ability to raise prices without fear of damaging sales.
In some cases, consumers aren’t even aware that prices have been increased. In other instances, prices have gone up but consumers don’t have viable alternatives.
It goes without saying that stock markets can go up and down at the drop of a hat. But that is only in the short-term, where the twin emotions of fear and greed can play a starring role.
But in the long term, it is earnings that always take centre stage. So look for companies that have the ability to grow earnings, grow their book value, grow their cash flow and grow their dividends.
That is your best bet to beat inflation over the long term.
A version of this article first appeared in Take Stock Singapore. Click here now for your FREE subscription to Take Stock – Singapore, The Motley Fool’s free investing newsletter.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.