A spectre is haunting Middle England– the spectre of INFLATION!
So starts Marx, except he was talking about Communism. We’ve got a different problem in today’s world and that is INFLATION! Or in other words, there’s too much money and not enough things to buy with it. The cost of everything is going up and nobody is happy about it.* It’s not great for those on fixed incomes or cash savings and if you are not getting a pay rise then you are getting paid less. The Lady recently got a nice “pay rise” in work (well deserved) but considering inflation a cynic might just call it a “pay flat”. I on the other hand am on month 18 of a temporary (12 month 10% pay cut**).
Inflation is like a secret assassin who steals away the value of your money or if like me, your side hustle is hoarding rock salt all year round to sell it for a profit during the winter months, inflation is like rain washing what you’ve salted away!
There will be scare stories in the press – possibly over how Xmas turkeys are now just obese spring chickens that couldn’t be slaughtered this year. There will be rolling shortages of everything from oranges to olive oil. holiday cottages to cottage cheese and from toothpaste to tumeric. All adding to the angst and behind all of this will be the creepy inflation, stalking you and your Daily Mail reading relatives.
Don’t believe me? Here’s an article from the BBC – most reputable and a scary graph. Inflation may hit levels that we’ve not seen in almost two decades and that’s long enough for us to have forgotten about inflation. And when I mean forgotten about inflation, I don’t mean the usual money moanings that people have about how petrol is 2p a litre more expensive than this time last month. I’m talking about the price of some things going up significantly – you know, just like how house prices went up uncontrollably for years (but nobody minds that time of inflation). The UK has benefitted from falling inflation and interest rates for the last 20 years. It’s been a bit of an unacknowledged miracle but for many people, the last 20 years have brought unparalleled prosperity from things like: cheap mortgage and debt rates, booming stock markets, gold plated final salary pensions, rampant house price inflation (maybe even a cheeky BTL if you are savvy or holiday home because you deserve it), favourable employment market, no wars at home, benign tax regime and lashings of cream. It’s great being a lucky boomer / GenX.
The Rich Get Inflation, The Poor Get Cuts
If you want to talk about intergenerational unfairness; I found out in the 1990s that my retirement age would be 65, it’s since moved (without my consent – because I’d have said no) to 68. That’s 3 years of lost pensions, which at the New State Pension full amount of £179.60 a week is just over £28,000. To put that in perspective. That is more than I’ve paid for gas, electricity and council tax for my large, draughty, Band E house in 6 years of living here. Some groups like the WASPI women want to roll back the move from 60 – but only for them and not us.
So, a bit of inflation at 6% after years of low inflation and negative real bank rates won’t do as much harm as is done elsewhere in the economy.
My understanding of economics is not perfect, but I imagine that there’s always going to be work to do (like you can’t have a nation that is healthy enough, so the NHS will always have an infinite budget) but there won’t be enough money to pay everyone to do the work. Inflation is like a hernia just about the buckle of the belt that keeps in the belly of the economy. It’s always there but you don’t want to aggravate it or you’ll be in pain!
Inflation for the Financially Independent?
I’ve been reading a bit from other bloggers and bloggers about inflation and I’d like to say that I’m not concerned. For one, you can’t do much about it. Secondly, if you can do something about it, do it and move on. I agree with what Full-time Finance says about inflation “So, I have decided to continue to monitor my expenses over those 3 years. If/when they go up, I can adjust my target rate up then.” Except I’m not even going to monitor expenses. I think that higher inflation will benefit my renewable energy investments (inflation linked prices), eat my mortgage and if it means my stocks lose out in relative/real terms, then I’m happy to remember that they’ve been on a wild ride over the last few years.
How you organise your finances is your business. Inflation is everywhere, there’s not much you can do about it – so why worry?
The real worry is how the government will go about filling its coffers after Covid. There will be groups that are taxed and taxed and taxed. And we’ve seen who that’ll be when National Insurance was raised, starting soon. That’s on the horizon for me, inflation is just scenery.
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*I am actually non-plussed about inflation. I don’t have much actual cash and our assets are resilient against inflation, pensions too and our mortgage (£130,000’s worth) is getting eaten alive by it – keep inflation coming!
**I negotiated a jump in salary when I job hopped, so not all bad news. Plus WFH suits me and saves me maybe 10% on income and has a positive impact on my work/life balance. +100% for more time with the wife and kids – so I’m a winner!