Inflation Crisis. How can we protect ourselves?
Unless you’ve been living under a rock, you’ll have noticed that Inflation has been dominating the headlines recently, and for good reason too. The UK's inflation rate rose to a staggering 5.4% in the 12 months to December 2021, the highest rate seen for 30 years. Since then, things haven’t improved, with shop price inflation on goods such as furniture and flooring almost doubling in January to the highest level for nearly a decade. The most worrying, however, is the price of everyday essentials which are going up by more than the official inflation rate, hitting those less well-off the hardest. According to the 2021 figures from the Office for National Statistics: Items such as roasting beef have risen by 29%, margarine by 31% and cauliflower by 20%.
Why is this happening?
There are many factors contributing to the problem, however, the main reason behind this is the rising global price of energy. This has meant higher energy and transport bills for businesses, many of whom pass on the extra costs to customers. This, compounded by nationwide staff shortages, rising wages, supply chain issues and rising customer demand, means prices are being pushed higher to cover increasing costs. This presents a real worry for many, whether it’s how to mitigate against the rise in the cost of living, or how to protect hard earned savings from the corrosive effect inflation can have.
What can I do?
Firstly, we suggest setting aside some time to amend your budget. Take stock of your current situation and then begin scaling back on non-essential things to make room for the ongoing costs of essentials.
Holding cash generally won’t help you outpace inflation, but you can certainly look for the best deals on the market to make sure you are getting the best return possible. If you have funds beyond a ‘rainy day’ pot, it’s worth considering tying it up for a period best suited to you in a fixed-rate account, which tend to offer higher rates of interest.
If you have a sizeable nest egg set aside that you don’t foresee needing for at least five years, it may be worth considering investing it if you want your savings to have a fighting chance of keeping pace with inflation. By investing your money into a well-diversified portfolio of funds, you will be giving your money the potential for inflation-beating returns. This could be done via a Stocks and Shares ISA, which enables you to save up to £20,000 each year, with growth and income on investments free from tax. Bear in mind that your capital is at risk and the value of your investment can go down as well as up.
Not everyone’s earnings will move in line with inflation, and so high inflation can mean a decrease in your real income. Pay increases are, of course, not always guaranteed but if you get an opportunity, ask for a pay rise in line with inflation. It might also be helpful to do your own research or contact a recruiter to understand what the current going-rate is for your position or similar, you may be surprised!
In retirement, inflation is one of the most significant financial challenges if you have a fixed budget or income. Whether you are approaching retirement soon or it is still some way off, we would advise reviewing your retirement plans. Setting out your retirement goals and the income you will need to achieve those, will give you an idea of what you need to do now to boost those ever more important retirement savings.
Clients of ours recently told us about how their community is doing to help combat the rising price of fuel. They have an arrangement whereby one person buys the oil on behalf of the households that need it, benefiting from bulk-buy discounts, which they are able to pass on to the other villagers, meaning everyone pays less for their delivery. In inflationary times, bulk buying can be a useful means to keep costs down. We would also recommend not putting off any larger planned essential purchases, as today’s price is not necessarily going to be tomorrow’s price!
If you are fortunate enough to be in a position to support a charity or organisation assisting those who are struggling to cover the essentials, please do. Local food banks, such as All Saints Food Bank in Evesham, would appreciate the support. The local Co-Op in Broadway also has a collection basket where you can donate items.
If there is anything in this article that you would like to discuss, please do not hesitate to get in touch.
Sources:https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/december2021
