[Family financial management methods] Understanding the Consumer Price Index: How to deploy short, medium, and long-term family financial plans to combat inflation?
Finance2025-10-10
8 Mins Read
If you have a steady paycheck but struggle to save, you’re not alone—the pull of overspending is a common hurdle for many families, and the underlying cause is likely inflation. You've probably heard of the Consumer Price Index (CPI); this figure reflects the price changes for the essential goods and services in our daily lives. According to the latest data from the Census and Statistics Department, the year-on-year increase in the composite Consumer Price Index for August 2025* (i.e., the underlying inflation rate) was 1.1%, slightly higher than the 1.0% recorded in July 2025. While this number might seem small, every increase in essential expenditure is something families cannot afford to ignore.
Whether it's daily essentials or monthly utility bills, costs are constantly rising. Inflation directly increases our living expenses, making saving significantly more difficult even with a stable income. In the long term, if inflation continues to rise sharply, outpacing wage growth, it will erode purchasing power and investment returns. This makes it impossible for us to keep up with price increases, and wealth accumulation becomes more challenging. Today, let's understand the Consumer Price Index and the important implications behind it, to help build a stable future for your family.
What is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) is a measure that tracks the changes in the price of goods and services required by households over a period of time. It reflects the level of inflation and is used to gauge changes in the actual cost of living. The CPI is calculated based on price movements of a representative basket of consumer goods and services, which includes items such as food, clothing, healthcare, transport, and housing, among others.
The main factors affecting the CPI include food prices, energy costs, and housing expenses. Fluctuations in food prices may arise from unstable agricultural supply or changes in weather conditions. Energy prices are influenced by global market demand and supply. Housing costs are affected by market supply and demand, economic conditions, government policies, and interest rate environments. In particular, changes in rent and mortgage interest rates can have a significant impact on the CPI.
Why is the CPI so important for us?
In essence, the CPI reflects the rate at which prices are rising. This means that when the CPI increases, the cost of our shopping, bill payments, and even everyday expenses becomes higher. If we don't adjust our spending habits in line with changes in the CPI, we may find our monthly outgoings increasing, our savings diminishing, and our financial pressure growing.
Understanding the CPI helps us predict price trends and, in turn, adjust our financial strategies. For example, when the CPI is rising, we should be more mindful of our spending and consider adjusting our investment or savings approaches to protect our financial stability and face inflation with greater confidence.
Looking ahead, continued global economic uncertainties and market volatility are likely, which will pose a significant challenge for every household. How to effectively manage short, medium, and long-term financial planning in such an environment has become a question we all need to consider carefully.
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Short-term family financial planning: Maintaining financial stability
When facing short-term financial challenges, the focus of family financial planning is to maintain existing stability, ensure monthly expenses do not exceed income, and prepare for potential unforeseen circumstances. Here are some specific strategies:
1. Control daily expenses: Prudent spending and seeking discounts
Prudent spending is the cornerstone of maintaining financial stability. First, you should review your family's daily expenses to identify which are essential and which can be adjusted or reduced. For example, always compare prices from different retailers before making a purchase, and utilise vouchers, discounts, or loyalty points to reduce costs. Furthermore, the growing popularity of second-hand trading platforms allows sellers to dispose of unwanted items in a more eco-friendly way while earning extra income; buyers can acquire items at more affordable prices, supporting sustainability. These methods can help families save a significant amount on everyday outgoings.
2. Increase income sources: Part-time work, side hustles, and investment returns
Relying on a single income stream can make family finances vulnerable, so diversifying income sources is an effective strategy. Consider taking on flexible part-time work or a side hustle to generate additional income for the household. Beyond this, making smart use of family assets to earn extra money is a wise choice. For instance, selling unused items or investing a portion of savings into low-risk products, such as fixed-term deposits, can help your capital grow.
3. Build an emergency fund: Coping with short-term economic fluctuations
In the short term, establishing an emergency fund is crucial to effectively manage sudden financial pressures, like unexpected medical bills or car repair costs. It is generally recommended to save at least 3 to 6 months' worth of living expenses as a contingency fund. This ensures that even if household income is temporarily reduced or other unexpected costs arise, your finances won't be pushed into difficulty. Building this fund doesn't need to happen all at once; you can accumulate it gradually by setting aside a fixed amount each month.
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Medium-term family financial planning: Asset growth and inflation-resistant strategies
In the face of inflationary pressures, family financial planning must not only focus on short-term expense control but also deploy strategies for asset growth and inflation resistance in the medium term. This helps maintain the family's financial stability and enables wealth accumulation to counter potential future increases in the cost of living.
1. Invest in inflation-resistant assets: Stocks, property, inflation-linked bonds, and savings insurance
As inflation's impact on the cost of living intensifies, allocating funds to inflation-resistant assets becomes a crucial part of medium-term financial planning. Investments such as stocks and property are considered by many to be hedges against inflation, as they have the potential to increase in value alongside rising inflation. Their growth potential can offset the decline in the purchasing power of money and effectively combat the erosion caused by inflation. However, these investment methods also carry certain market risks, making appropriate diversification a wise approach.
Additionally, inflation-linked bonds are a sound choice, offering families a stable return. Furthermore, savings insurance is an ideal anti-inflation tool. Compared to traditional savings methods, savings insurance typically provides steady potential returns. The underlying investment portfolios are managed by professional financial advisory teams to balance various risks, ensuring that family funds can achieve capital preservation and growth even in an inflationary environment. Savings insurance often includes life protection, helping safeguard the family while building wealth. Particularly in a low-interest-rate environment, the long-term capital preservation effect of savings insurance is especially prominent, and its potential returns become more attractive.
2. Diversify your investment portfolio: Reducing risk and increasing capital appreciation opportunities
To navigate market uncertainties, diversification is an essential strategy. Inflation and economic fluctuations affect asset classes differently, so it's important to allocate family funds across various types of assets. For example, a portion could be invested in the stock market, another portion used to purchase inflation-linked bonds, with an additional allocation to stable, growth-oriented savings insurance products. This approach increases opportunities for capital appreciation while reducing the risk associated with the volatility of any single asset class.
When diversifying, families can select suitable investment types based on their risk tolerance and future financial needs. If a family is risk-averse, they might choose more stable assets like savings insurance and government bonds. Families willing to accept higher risk could allocate some funds to growth-oriented assets like stocks or property.
3. Manage loans flexibly: Early repayment strategies
In a rising inflation environment, mortgage interest rates may be affected. If the family's financial situation allows, considering early repayments can reduce future interest costs, positively impacting long-term financial stability.
It is also important to avoid high-interest credit card debt or other short-term loans. In an inflationary environment, such high-interest debt can quickly erode a family's financial health, so repaying it promptly or avoiding excessive borrowing is crucial.
AXA's Savings Plans
AXA's savings plans offer sustainable wealth growth to save for your future while giving you protection.
Long-term family financial planning: Wealth accumulation and retirement preparation
In an environment of inflationary pressures and future uncertainties, long-term financial planning for families is particularly crucial. This relates not only to growing family wealth but also to securing future retirement living and preparing for children's education costs. Below are specific long-term financial strategies to help families achieve financial freedom and be thoroughly prepared for the future:
1. Long-term investments: Stocks and index funds
A core element of long-term financial planning is selecting suitable long-term investment vehicles to achieve capital growth. Stocks and index funds (such as the S&P 500) are two primary methods for long-term investment. While the stock market can be volatile, it has historically served as a hedge against inflation over the long run. Index funds are another popular choice, often more suitable for investors who do not wish to spend significant time selecting individual stocks.
2. Insurance and asset inheritance: Life Insurance, annuity policies, and legacy planning
Insurance is not just a tool for risk management; it's also a key component of long-term financial planning. Life insurance provides protection for the family, ensuring that they are not faced with financial hardship if the primary income earner is no longer there. This is especially important for families with minor children.
Furthermore, legacy planning is an essential part of long-term family financial strategy that cannot be overlooked. Proper legacy planning ensures the smooth transfer of family wealth to the next generation, avoiding unnecessary tax burdens or inheritance disputes. By establishing trust funds, naming beneficiaries in a will, or designating beneficiaries on savings insurance plans, you can ensure that family assets are distributed according to your wishes.
3. Children's education and retirement planning: Saving and investing early to ensure future financial freedom
Saving for children's education is a critical part of family finance, especially against the backdrop of constantly rising education costs. Parents should start saving from when their children are young and choose appropriate investment methods based on educational goals. When setting a target amount, it's important to factor in inflation. Parents can opt for savings plans that include capital preservation and growth features. For instance, some savings insurance products offer options to lock in the policy's value, which can help counter the threat of inflation while achieving asset growth.
Adapting flexibly to inflation to ensure household financial resilience
In the face of persistently rising prices and an ever-changing economic landscape, every household must learn to adapt flexibly, acquiring financial knowledge and putting it into practice. Although inflation is an unavoidable phenomenon, we can mitigate its impact on our household finances by regularly monitoring changes in the Consumer Price Index (CPI) and adjusting our financial strategies accordingly.
Whether it's managing short-term household expenses or implementing medium to long-term asset growth plans, establishing a sound financial plan allows our families to live with greater peace of mind. Effective budget management, flexible approaches to increasing income, and robust investment strategies not only help us withstand the pressures of inflation today but also pave the way for steady asset growth in the future, helping to secure a more stable financial future for our families.
*Census and Statistics Department: Consumer Price Indices for August 2025 [22 Sep 2025]
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