Rising Inflation: How does it affect you?

As reports of rising inflation in the UK flood the news, we thought the time was right to take  a closer look at how it could impact you. With inflation hitting a 30 year high in recent  weeks, it’s bound to have an effect, so we thought it best to look into what could happen  and how best to deal with the situation.

What is inflation?

Inflation is a measure of the  relative value of a currency. It  measures how much prices rise  and fall and is tracked by several  indices – mainly the consumer  price index (CPI). The CPI records  the average cost of 700 items  including everyday items such  as food and fuel and a figure is  referred to as the headline rate is  determined based on how much  those prices have gone up over  a year.  

Why is the rate so high?  

The rate of inflation has been  rising recently and is currently  at a 30 year high, but why is  that? Well, one of the biggest  contributors to the recent  rise has been the increase in  the price of petrol. The price  of petrol rose by 5.1% month  on month in 2021 to reach a record high – with a 7.2p per litre increase between October and November being the biggest  increase since the ONS (Office for National Statistics) began  keeping records of the price in  1990. Other average prices have  also risen recently, with second-hand cars becoming more  expensive as issues with supply  chains have consistently held up  vast numbers of new cars going  to market.  

What does this mean for you?

In a nutshell, what this rise in  inflation could mean for you is  that your cash might not stretch  as far as it previously had. If you  are on fixed pay, then you may  feel the effects slightly more  as the prices of everyday items  increase around you. If you are saving, higher levels of  inflation can cause problems. It  may not make a huge difference  in the grand scheme of things,  but if you are looking to stretch  your savings, moving to higher  risk investments can sometimes  reap more rewards – although  there is an obvious increase to  risk in this method.  

What happens to your  mortgage?  

If you have a variable rate  mortgage, the recent rise in  the base rate will mean a slight  increase in your repayments.  However, many homeowners  across the country have opted  for fixed-rate mortgages, and  monthly repayments will not  increase for the duration of their  fixed term.  In more general terms, a  significant rise in inflation can  have a negative effect on how  far your income can stretch. The  good news is there are  measures in place to counter it  such as the base rate increase  and the proposed 6.6% living  wage increase set for April 2022. 

 If you’d like to discuss the options available to you, contact your adviser today .

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