Nartegin Tokkazy | 06.11.2024
Understanding Inflation: How It Affects Our Daily Lives
Inflation is a term that affects everyone's daily life but hardly ever understood fully. It is defined simply as the rise in prices of goods and services over time, which reduces the purchasing power of money. Thus, if inflation were at 5%, what used to be $100 for an item last year would now cost $105. This gradual rise in prices means that the same amount of money buys less than it used to, impacting how we budget, save, and spend.
In Kazakhstan, inflation has become a notable issue. According to the latest report by the National Bank of Kazakhstan, it reached 19.6% year-on-year in 2022-its highest level since the late 1990s. This growth was food-driven, and saw food prices rise by more than 25% in 2022 alone, thereby putting added pressure on household budgets across the country. The government reacted this way: It put controls on the price of bread, oil, and sugar, and gave targeted subsidies to assuage the burden of expenditure on the low-income families. However, high inflation continued to affect daily expenditure since the regulated items did not provide cover for houses large from a rise in prices.
There are many contributors to inflation. Sometimes, inflation results from when demand for goods and services is greater than supply, a situation called demand-pull inflation. This is often the case in booming economies or at peak shopping seasons. In other instances, inflation comes as a result of an increase in production costs, something known as cost-push inflation. If companies have high raw material costs, transportation, or wages, the cost is always passed to the consumers in terms of price increase. Global events, such as the disruption of supply chains or high oil prices, may be another cause of inflation as goods become more difficult and costly to make or transport, hence increasing the prices. Events outside of Kazakstan's control, however, include the volatility in the world's oil prices and disrupted supply chains during the COVID-19 pandemic, since Kazakstan relies on imports for many consumer goods. For example, global disruptions have increased food imports, one of the biggest components of Kazakhstani diets, such as wheat and meat products.
Inflation hits our purse in so many ways. First, it raises living expenses, thereby making dining essentials, rent, and utilities expensive. The effects are sorely felt in the case of fixed incomes as purchasing power declines with each increase in inflation. Second, it can eat away savings. High inflation means that over time, the money sitting in that low-interest savings account is losing value, since it does not go as far as it used to. Central banks typically control higher-than-desired inflation by raising interest rates, which cool down the economy. This makes borrowing-for example, car loans or mortgages-more expensive, and can dampen the consumer's spending or investing in big-ticket items. The National Bank of Kazakhstan tightened its monetary policy by increasing the policy interest rate to up to 14% in 2022 from 9% in 2021 for the purpose of compressing consumer spending and decreasing price growth. It was one of the most acute issues-still-inflation-as for which the government continues to seek methods of tempering.
Understanding inflation will help make intelligent decisions with one's finance to contain the effects of inflation. Keeping oneself informed and budgeting can help people prioritize essential expenses and cut down on unnecessary ones. Diversifying your portfolio in assets that increase over time, including stocks or even real estate, helps insulate your savings from the erosion of purchasing power caused by inflation. Understanding the causes and effects of inflation, even though it is inevitable, develops one's ability to get around these financial obstacles easier and-most importantly-allows an individual to stabilize personal finances. Experts in Kazakhstan suggest making investments in a diverse way, highlighting real estate or commodities that might be more resistant to further economic effects of the pressure of inflation.
In Kazakhstan, inflation has become a notable issue. According to the latest report by the National Bank of Kazakhstan, it reached 19.6% year-on-year in 2022-its highest level since the late 1990s. This growth was food-driven, and saw food prices rise by more than 25% in 2022 alone, thereby putting added pressure on household budgets across the country. The government reacted this way: It put controls on the price of bread, oil, and sugar, and gave targeted subsidies to assuage the burden of expenditure on the low-income families. However, high inflation continued to affect daily expenditure since the regulated items did not provide cover for houses large from a rise in prices.
There are many contributors to inflation. Sometimes, inflation results from when demand for goods and services is greater than supply, a situation called demand-pull inflation. This is often the case in booming economies or at peak shopping seasons. In other instances, inflation comes as a result of an increase in production costs, something known as cost-push inflation. If companies have high raw material costs, transportation, or wages, the cost is always passed to the consumers in terms of price increase. Global events, such as the disruption of supply chains or high oil prices, may be another cause of inflation as goods become more difficult and costly to make or transport, hence increasing the prices. Events outside of Kazakstan's control, however, include the volatility in the world's oil prices and disrupted supply chains during the COVID-19 pandemic, since Kazakstan relies on imports for many consumer goods. For example, global disruptions have increased food imports, one of the biggest components of Kazakhstani diets, such as wheat and meat products.
Inflation hits our purse in so many ways. First, it raises living expenses, thereby making dining essentials, rent, and utilities expensive. The effects are sorely felt in the case of fixed incomes as purchasing power declines with each increase in inflation. Second, it can eat away savings. High inflation means that over time, the money sitting in that low-interest savings account is losing value, since it does not go as far as it used to. Central banks typically control higher-than-desired inflation by raising interest rates, which cool down the economy. This makes borrowing-for example, car loans or mortgages-more expensive, and can dampen the consumer's spending or investing in big-ticket items. The National Bank of Kazakhstan tightened its monetary policy by increasing the policy interest rate to up to 14% in 2022 from 9% in 2021 for the purpose of compressing consumer spending and decreasing price growth. It was one of the most acute issues-still-inflation-as for which the government continues to seek methods of tempering.
Understanding inflation will help make intelligent decisions with one's finance to contain the effects of inflation. Keeping oneself informed and budgeting can help people prioritize essential expenses and cut down on unnecessary ones. Diversifying your portfolio in assets that increase over time, including stocks or even real estate, helps insulate your savings from the erosion of purchasing power caused by inflation. Understanding the causes and effects of inflation, even though it is inevitable, develops one's ability to get around these financial obstacles easier and-most importantly-allows an individual to stabilize personal finances. Experts in Kazakhstan suggest making investments in a diverse way, highlighting real estate or commodities that might be more resistant to further economic effects of the pressure of inflation.
