INFLATION HITS 11.4%

Inflation finally hits double digit in June with 11.4%, brought about by relentless oil price increase in the world market hitting a market high of $145 per barrel.

When inflation is high, what does it mean for the common people?

- Inflation eats up the purchasing power of your money. As prices of basic commodity increase, you’ll find yourself spending more for the same basket of goods you’re buying.

- Spending more would mean increasing the money supply in the market. As most people will continue to eat, drive to work, and spend everyday- more money will float in the market.

- When inflation is high, central bank tends to increase Interest Rates to control the money supply in the market. With high interest rates, people will think twice before buying goods which they have to pay with interest rates. With this, central bank hopes to reduce the money supply in the market, and hopefully curb inflation.

- If inflation is high; Interest Rate is high. Then interest rates for auto loan, housing loan, personal loan, etc will also increase — So, is it best to buy a new car, a new home, and get a loan during high inflationary period? — if your paying cash, go right on.. but, if you’ll pay the mortgage or monthly amortization — may not be a wise move.

- Inflation is not all negative — again, there will always be two sides of a coin. As a consumer, high inflation will definitely beat you down. But as an investor (if you have existing investments in the money market), high interest rates will work to your favor. As central bank increases interest rates, banks should follow suit by increasing their Time Deposit Rates, Bills and Bonds Rates, etc. What is the logic? With banks now offering attractive interest rates, people will save more and put more of their money in the banks than spend it — again, solving the problem of too much money supply in the market.

So, how do we cope with Inflation? Spend Less… Save More.

BDO REWARDS

When you save and keep your money in commercial banks, they give you 0.75% p.a. interest rate, and yet they lend your money to you or to other people through Auto Loan, Personal Loan or Housing Loan with exorbitant interest rates ranging from 10% to 15% p.a. or even more. On top of that, they earn whenever you pay your bills, load your cellphones, or make other bank transactions. Banking is truly a profitable business — literally people line up everyday in banks to give them funds, which they can use to earn more money. And yet, at times you get crappy service from bank employees treating you like sh*t, as if they don’t benefit from your hard-earned money (I can devote a whole separate post for this topic — I sure have so many stories to tell.. hehehe)

Until, one bank thought of giving back (even a miniscule fraction) to their depositors. The birth of BDO Rewards. As they claim, a consumer-centric approach that provides opportunity to depositors to share the earnings of their money. When the Sy’s took over the merger of Equitable-PCI and BDO, I’m quite positive they’ll bring their retail experience in the banking world — im sure everyone knows about SM Advantage Card, and the BDO Rewards Card is like a twin brother which gives you peso-points for bank transactions, and the amount of money you keep in their bank (on top of the usual, and crappy interest rates) — Is it enough? NO — but, better than nothings! I’m not jumping up and down, but I’m sure this will be the beginning of many other developments in banking system.

To know more about it — especially, if you’re a BDO depositor, please check this website…

http://www.bdo.com.ph/Rewards/index.asp

Will this encourage me to keep more money in a commercial bank? Probably. Some amount to keep my l life going — to settle my monthly bills and other expenses. But, for real savings with better interest rates — i still put my bet on Rural Banks. As long as it’s PDIC insured, I can still sleep peacefully every night.