Learn How Inflation Will Affect You And Your Money

Rising inflation: What does it mean for you?

It’s no secret to anyone that the economy and living conditions are turbulent right now. As we push forward in our efforts against the pandemic, shockwaves and after-effects of lockdown and more are being felt across the country and the wider world.

In the UK, one of the more pressing of these is inflation. With rates rising, we’re taking a moment of your time today to outline what this is, what it means, and how you can plan around it to maintain financial control. Let’s take a look.

Let’s start with the basics: What inflation actually is

It’s OK not to understand this one; it can be an intimidating subject to dive into but it is important, so that you can understand the state of the country and its economy for your own benefit. Simply put, inflation is a term used to refer to the rise and fall of prices in the country. In most cases, professional economists will refer to the Consumer Prices Index (CPI) to help define this. What is the CPI? Easy; it’s a total of the costs of 700 common items we consumers purchase regularly, such as food, and petrol or train tickets. It’s a handy baseline for understanding whether prices are increasing or decreasing on average in the UK.

When reviewing the CPI, economists will look at what is known as the headline rate, which is the amount at which the CPI has gone up across a given year. Measuring and monitoring this figure is important, and banks will engage in proactive or preventative measures as deemed necessary to try and keep the headline rate at about 2%. That sounds complicated but it all just means banks and governments don’t want the total price of the 700 items to increase by more than about 2% a year.

Recent months and rising rates

As you’d expect, the news is flooded right now with articles that are loudly proclaiming rising rates of much more than 2%. Some of these are alarming and exaggerated, but it’s a serious issue and it deserves to be looked at thoroughly by anyone trying to develop and improve their financial awareness and control.

The CPI figures are published by a government body that is called the Office for National Statistics, or ONS for short. While something like the inflation rate is extremely complex and is influenced by many different factors inside and outside our own country, the ONS did note that rising rates had been affected by increasing prices for common items like food, transport, and apparel.

Of all of these, the increase in transport costs was identified as the largest factor. It’s no surprise, really; as the country opens up a little more and restrictions from COVID-19 are loosened, people are returning to work and using trains and vehicles more often. According to the ONS, October saw the largest single increase in this area of costs since as far back as records began in 1990. It’s important to appreciate the complexity of a subject like this; experts spend their entire careers learning about the economy and how it moves and changes. With that said, the CPI and the reports released by the ONS are still helpful to the average adult.

What this means for families and adults in the UK

It’s good to keep a level head when we see headlines talking about rising inflation. It’s easy to get worked up about a subject as important as the inflation rate, but stress doesn’t help anyone in the long run.

A rising inflation rate isn’t the end of the world. It does put a bit more pressure on consumers' bank accounts as the cost of everyday goods increases. However, inflation has been around forever. It is a fact of life that can be navigated and worked around.

One area of importance for your financial planning at a time like this is savings. A rising inflation rate combined with lowered interest rates isn’t good news for savers. Money in normal savings accounts will earn less interest which may have some people considering alternate options for depositing their funds as they plan for the long term.

Unfortunately, we are seeing experts showing a dim view of the foreseeable future as far as savings and investments are concerned. Interest rates are unlikely to improve, lowering the efficacy of many savings options. This is something that will have to be endured, unless you are willing to consider investments that incur greater risk. In general, that means your money will grow less than it may have been projected to in previous years.

Planning for the future

With the health of the economy unlikely to recover in the short term, it’s important now more than ever to maintain active control of your finances. In addition to monitoring your expenses monthly and trimming unnecessary costs, a proactive approach to increasing your monthly income can pay dividends.

This is particularly true where employment is concerned. A tighter labor market means many companies are struggling to fill positions. That gives job applicants more leverage to get a higher starting wage as well as other benefits. If you’re looking for work or are employed currently, you can use this to your advantage.

If you commute to work and you are looking to save money, you may be able to take advantage of the shifting work culture. You can request a hybrid working model that allows you to cut costs and save time by working from home for part of the week. In addition, it’s always valuable to keep a private log of your duties and activities at work. This can allow you to note any increases in responsibility, helping you to shape an argument for a pay increase. With talent shortages on the mind of so many businesses at present, it’s a good time to make a case for yourself.

Finally, it’s helpful and appropriate to make plans for what you’ll do if you have a financial emergency. Consider your options for securing additional finance and have these ready if your outlook isn’t at its best. This can help to reduce stress and make it faster and easier to react to challenges.

We hope this helps! The team here at Everyday Loans appreciates you stopping by for another article on finances and the current economy. We hope the information presented here today is useful in improving the way you handle your finances and plan for the future.