If you’re old enough, you probably remember a time when your Ringgit used to go further than it does these days. The reason for this is something we all know: inflation. But what exactly is inflation?

Inflation occurs when prices rise, thus decreasing your Ringgit’s purchasing power. Many of us think of inflation simply as things becoming more expensive, but it is a bit more complicated than that. Basically, inflation is associated with a general increase in the price of goods and services, and a decrease in the value of money. It is the rate at which prices change over a given period, and usually measured on a yearly basis.

Here’s a simplified explanation. With an inflation rate of 5% this year, items that cost RM95 last year would be RM100 today. If the rate remains consistent at 5%, those same goods would cost you RM105 next year, RM110.25 the next, and so on.

Negative inflation (or deflation) is possible too: this happens when prices generally fall in an economy, and may be due to the supply of goods being higher than their demand, or an increase in buying power.

Economists think inflation is generally good when it helps boost demand and consumption, thus driving economic growth. But let’s be honest: for consumers, inflation is not a word that inspires warm and fuzzy feelings, does it?

Malaysia’s national inflation rate was reported at 2.3% last January. While not alarming, experts warn that this figure is likely to go up in the next few months. Worryingly, while overall prices are climbing, our earnings and wages are not keeping up with the hike.

Almost daily, there is news on rising prices, especially for basic goods like meat and poultry, petrol, and medical supplies. Assuaging the rakyat’s worries, the Government has assured that fuel subsidies will be maintained to hold off a sharp rise in inflation, but we cannot rely on such measures to shield us forever.

How bad can inflation really get? Well, let’s take a look at Russia and Sri Lanka. Because of sanctions in the wake of the Ukrainian invasion, Russia’s inflation rate soared to an unthinkable 200% in early April, thus turning even basic items into prized commodities. As for Sri Lanka, huge national debts and political turmoil have led to soaring food prices, blackouts, and shortage of fuel and essential items. In both countries, rising inflation has brought harm to the people’s welfare and livelihoods, not to mention civil unrest.

So, what should we take away from all of this? First of all, it’s normal to feel worried, but let’s not blame all our money woes on inflation. There are many other factors that are causing prices to rise, and this can include the ongoing pandemic, geopolitical tension, supply-chain issues, and natural disasters.

No matter the inflation rate, it is important to spend cautiously: do not panic buy, as this may actually drive up demand and cause prices to increase. Instead, buy only the necessities, save as much from your earnings as you can, and try to support local businesses too. Use this time to scale back, curb your online shopping urges, and reduce waste. Inflation or not, we can all learn to be financially more responsible.