Understanding Inflation For The Ex Pat

[Super Joe]

For years (if not decades) before the crash in the late 90's the exchange rate seemed to be stable (pegged ?) at around 25 baht to the dollar.

Then the Asian crash happened and within a couple of years the baht was in the low 50's to the dollar. Ever since then it has been slowly and steadily creeping back to the 25/$1 that it had been for years before that.

Now at around 30 baht to the dollar the exchange rate is still better than it was in the early 90's but the cost of living has increased dramatically from what I've experienced to the point that you get much less for your 30 baht now than you did for your 25 baht before the crash.

Yes that's a good point here hhf, re: Hua Hin, whether the town is out-pacing general inflation rates, or more importantly inflation (growth) rates of our income. But don't forget you're 30 Baht now, was only 16 Baht back in 1995, in 'real money' terms, ie: adjusted for inflation at an average of 4%. Which just shows what a killer inflation can be, virtually doubling it, and that's with a relatively low inflation rate

And then, looking at it from the other side of the coin, if your income/pension has grown in pace with this inflation, then your 25 Baht back then, will actually be equivalent to 47 Baht today. Mind boggling ain't it.

The problem for us could be the good likelyhood that Hua Hin will do what places like Samui and Phuket have done, and increase beyond the general rate of inflation, and I would have thought that quite likely in any developing area. But then by my thinking, that means an area has become a better place with more to offer. And if someone does not think it's improved, but deteriorated they know what to do, and if they do think it's improved they've got to be prepared to pay for that, or they know what they can do. We had it in London growing up, where in the 70's/80's people were gradually moving outwards as it got to expensive in in inner London. That's life, progress, deterioration or whatever our outlook.

The other problem with a developing area, as we've all seen, although currently stopped in it's tracks, is what happens to land, houses, rents in developing areas, or all areas to less extent, that they increase at a rate greater than inflation. So at a rate greater than our income, salary, investments, which is what my last post was waffling on about.

This graph, although the UK, shows it well, but cou'ldn't find an up-to-date one showing the recent drop in prices...

chimage.jpg (24.63 KiB) Viewed 357 times

This graph shows 'property prices' and 'wages', but to me they are generally the same as 'rents' and 'pensions', in that rents tend to track property values, and that inflationary growth of pensions won't be far off that of wages. Not saying that's exactly right everywhere though.
SJ

[Korkenzieher]

m_right's analysis should wake some people up! Most folk are horribly complacent about the amount they will need as they get older. However, I'm not going to get into whether owning or renting, or specfic investment strategies are better than others.

I'm simply going to highlight that there are some more complex - rigorous - ways to play with the figures, ways which may give hints as to what the individual needs to look at in his or her particular circumstance. Ways which factor in more variables such as housing / rental growth; investment performance; lifespan and really, whatever you want.

For those who are interested, be aware that it is pretty much at the cutting edge of pension planning. That is where you need to be, if you want control of it yourself. You need to google on 'Monte Carlo Analysis' - yes, it is named after the Casino!

There's a few sites that show you how to do it in Excel relatively painlessly, (eg http://chandoo.org/wp/2010/05/06/data-t ... ive-guide/ but there are others) and some (very few - because they want to charge you for this stuff!) pensions planning sites that more or less tell you what to do and factor in. Quantext (http://quantext.com/subpage.html) is the absolute leader, as far as I can tell, and many of the articles on the link page are worth saving for future reference!

Be aware of course, that Monte Carlo Simulations are exactly that -simulations based upon the probabilities surrounding your best guesses! However, they will pretty soon tell you if you are in the right ballpark, or completely out of whack.

[paulsimkiss]

Hi, it all boils down to the rate of inflation vs currency exchange, depending where your money is, and the return of investment rate on your assets and money.

For example. If your money is in a currency that is gaining against the TBA your winning on that front. If your return on your investments are greater than inflation you are also winning on that front.

For example the UK FTSE has gone up nearly 25% in the last 18 months.