According to the Department of Statistics Malaysia’s April consumer price index (CPI) report, food inflation was 4.1% – higher compared to the same month recorded in 2021. 89.1% of items in the food and beverages group faced price increases as F&B companies faced rising production costs.
As reported by Channel News Asia, the subgroup of milk, cheese and eggs increased by 7.2% compared to April last year. Meat, vegetables, fish and seafood also increased by 6.2%, 4.5% and 3.8% respectively. While oils and fats increased by 3.5%.
This situation is unavoidable but unfortunately, our salaries remain stagnant. Malaysians have no choice rather than cutting down on food items that are considered a luxury.
The legendary 91-year-old investor, Warren Buffett had been thinking about inflation for a long time. He has repeatedly commented on the subject throughout his investing career.
He always stressed why inflation such a big concern for investors. This is because inflation causes the people to lose their purchasing power over time. For investors, this can turn what appears like a positive return into a negative one if inflation gets high enough. So here’s his tips on how to beat inflation:
1. Invest in good businesses with low capital needs
The legendary investor has long advocated the people for owning businesses that earn high returns on the capital invested in the business. According to him, during inflationary times, businesses with low capital needs that are able to maintain their earnings should fare better than ones that are required to invest more money at higher prices just to maintain their positions.
He once equated the challenge posed by inflation to “running up a down escalator.”
2. Invest in companies that can raise prices during periods of higher inflation
Buffett said the single most important decision in evaluating a business is pricing power. “You’ve got the power to raise prices without losing business to a competitor, and you’ve got a very good business.”
If a business can increase its prices, it has a big advantage during periods of high inflation because it’s able to offset its own increasing costs.
3. Invest in yourself and keep progressing
Investing in your own talent is one of the best ways to maintain your purchasing power over time. For instance, the best surgeon or lawyer in a city or town benefits from an education paid for in “old dollars” but is able to price their services in current dollars without having to re-educate themselves.
Try to update your resume by learning a new skill through online resources or a local college. Pursuing advanced degrees can be expensive, but they can also help grow your knowledge base and make you an indispensable employee in the future. Increasing your value to your employer and its customers will help you command your fair share of earnings over time.
4. Steer clear of traditional bonds
“Bonds are not the place to be these days,” Buffett explained. With interest rates still near historically low levels, bond investors could be hurt significantly in an inflationary environment.
Buffett has pointed out that purchasing a 10-year bond yielding 2% is similar to paying 50 times earnings for a business, a key difference being that the bond’s earnings can’t grow.
“Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future,” he said.
5. Limit your unnecessary expenses
Buffett’s business partner and vice chairman of Berkshire Hathaway, Charlie Munger, has his own take on how best to cope with periods of high inflation: “One of the great defences to being worried about inflation is not having a lot of silly needs in your life,” Munger told Berkshire shareholders back in 2004.
“In other words, if you haven’t created a lot of artificial demand to drown in consumer goods, why, you have a considerable defence against the vicissitudes of life.”
To help with this, consider tracking your expenses through a budgeting app. This will help you understand how you’re currently spending your money and may help identify problematic spending bursts before they become a habit.
6. Should you invest on gold and cryptocurrencies?
Notably, Buffett has shunned gold, an asset often thought of as being a great inflation hedge. For Buffett, he believes that “If you own one ounce of gold for an eternity, you will still own one ounce at its end.” Instead, he prefers to own productive assets such as stocks, real estate or farmland that generate dividends, income and food for their owners.
Talking about crytocurrenciess that some have referred as the digital version of gold, Buffett is highly skeptical of these as well. “Bitcoin has no unique value at all,” he said. “It doesn’t produce anything. You can stare at it all day, and no little Bitcoins come out or anything like that. It’s a delusion, basically.”
We can’t run from inflation. However, if you’re concerned about it, consider taking Buffett’s advice and invest on high-quality businesses with low capital needs. Stay away from cryptocurrencies – rather, invest on stocks, real estate and such.
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