Stability is a favourite word among most households. When you start your career, everyone around you will talk to you about targeting a stable job. The idea is to avoid surprises as much as possible in your career. Effectively, the meaning of stability hovers around finances. You want a steady income to pay for your expenses for today and leave something for tomorrow. You want the inflation rate to stay low forever so that you can spend less, save and invest more from your income. You will do whatever it takes to achieve that stability in life.
That is a micro view.
If you zoom out and look at the big picture, price stability matters to most economies. The US Federal Reserve, America’s central bank, strives for that. In a speech, last week at a central bank symposium, the board chairman, Jerome Powell, used ‘price stability’ at least 12 times. He announced that the US central bank would raise rates until inflation reached 2%. That could slow economic growth in the world’s biggest economy. Even then, policymakers are pushing to bring consumer price inflation down.
The story would be no different in India. The Reserve Bank of India’s monetary policy committee, which meets once in two months to determine key borrowing rates, discussed inflation and price stability and raised rates. The minutes of the committee’s deliberations published last week show the concern about price stability. Their actions are driven by a large volume of data that shows inflation could continue to stay elevated. “Although inflation seems to have peaked, it is still unconscionably high,” observed Michael D Patra, deputy governor of the RBI, during the committee meeting. He explained that repeated supply shocks hurt the price stability more than the rising demand for goods and services.
What it means to your money
You will likely witness a phase of high stock market volatility, slow growth and high inflation in the short term. Under such circumstances, personal finances are affected. You may see the value of your stock market investments go down. Companies may accommodate demands for higher wages up to a point. If prices do not see stability, they could start cutting jobs. That could hurt future income for many in the workforce. High inflation will continue to hurt the value of your money.
You need to focus on the stability of your finances. The first step is to manage your monthly budget better. In situations of uncertainty and volatility, it makes sense to curb unnecessary expenditure. Try saving money wherever possible. For example, if you travel by taxi, you may want to consider sharing it with other riders. You can make your barista coffee at home instead of buying it on the way. Small changes in your lifestyle could lead to more significant savings.
Price stability is not just a concern for central banks or governments. If there is no control over inflation, you are at risk too. You need to crank up your output and earn more if cutting expenditure is impossible. If you have only one skill, try learning a new skill that will pay you later. If your job allows you to moonlight, take up extra work. Those not in the formal workforce can try gigs that would pay regularly. Your household needs you to bring in more to the kitty. That is the only way to tackle any inflationary, slowdown or volatility situation.
Your savings must find the right direction. If you are an accumulator, you need to start investing more than you ever did in the past. There is anticipation as we keep talking about India’s economic growth prospects. India’s economy is expected to grow at 7% and above over the next several years. Businesses that rely on that growth would continue to sell their goods and services and grow faster. Your investment in such companies directly or indirectly through mutual funds or exchange-traded funds can create wealth over the next 15 years. A first step could be to invest in knowledge. The concept of ‘easy money’ does not exist. You have to work hard to learn and earn.
(The author is editor-in-chief at www.moneyminute.in)