What is inflation?
Inflation is the increase in the prices of the goods and services that you can buy. This means that if inflation is high, it means that all prices are also quickly increasing.
What is an inflation rate?
This is measured as the rate of change to the prices for everything—from food and clothing to housing and flights.
Let’s look at an example.
If your weekly grocery was only 100 Dollars last week and you buy the exact same grocery items for 105 Dollars this week, then this means the prices increased. This is considered an inflation. If your income or wages did not increase, this basically means you are poorer because you can afford less that what you did last week.
How does inflation impact my remittances?
Generally, inflation will lead to a lower value of your local currency against foreign currency. This is because if you have high inflation in your country, then you can only buy less in your local currency.
Let’s look at another example.
Pretend that you are a migrant worker in Australia where the inflation rate is very high. You have family in the Philippines that you regularly send at least 1,000 Australian Dollars every month. The local currency is Australian Dollars (AUD) and foreign currency is Philippine Pesos (PHP).
Last month the exchange rate is 1 AUD = 38 PHP, which means your family received 38,000 PHP (1,000 AUD x 38 PHP). Over the past month, prices in Australia increased (inflation). Therefore, the exchange rate is only 1 AUD = 35 PHP. This means that your family will now only receive 35,000 PHP, which is 3,000 PHP less than last month due to inflation.
This is because your 1 AUD can now only buy 35 PHP instead of 38 PHP due to the increase in local Australian prices or inflation.
It is important to understand what inflation is and how it can affect exchange rates, which ultimately impact your remittances. Exchange rates change all the time as a result of different factors, including inflation. SaverAsia has made it easier for you to keep up-to-date with the latest and best exchange rates available with our free Compare Rates tool. This is free to use via our SaverAsia app and website.
You can learn more about exchange rates in our previous article. Or you can learn more about how you can budget your money better even when prices increase in our previous article here.
Written by Malorie Anne Manaois
8 June 2022