Around the campfire: Inflation is back – but by how much?

I  see that in the UK the official inflation rate in December (as measured by the Consumer Prices Index or CPI) was an annualised 0.6%, precisely double that of the previous month. If the cost of owner occupiers’ housing is included (the CPIH) the rate was 0.8%.

The Bank of England aims to achieve an annual inflation rate of 2%. If the government actually achieved that rate the pound in your pocket would lose around 18% of its purchasing power over 10 years. UK wages and salaries overall have stagnated since 2010 and, factoring in inflation, have fallen in real terms.

But am I alone in thinking that creeping price rises across many sectors are far higher than the official headline rate? Take Netflix, that entertainment standby for many of us during lockdown – it’s putting up the price of its standard monthly package from £8.99 to £9.99. What’s a pound, you may ask – but that’s a rise of more than 11%. If you want to buy a home to watch Netflix in, that too will cost significantly more – up by 7.6% in the year up to last November. The average house price in the UK is now £250,000, according to the UK House Price Index. Pity the poor souls who are struggling to put a mortgage deposit together.

Back in 2011, the Bank of England (BoE) warned, as the consumer price index rose to 4.4% – double the rate then of average earnings growth – that inflation could hit 5%. Sir Mervyn King, the BoE’s governor at the time, blamed dearer imports, higher VAT and rising global commodity prices for the inflation spike. Energy companies in August 2011 put up their tariffs for gas and electricity – Npower’s dual-fuel bill went up by more than 12% from October that year.

Dearer imports are certainly headed our way. The UN’s Food and Agricultural Organization (FAO) reported that in December that its food price index averaged 105.9, its highest in almost six years, 3.9% higher than in October and 6.5% higher than a year earlier. The World Bank said at the start of this month that commodity prices “continued to surge in December” with energy commodities up by 15% and non-energy by 4.7%.

And yet hardship surrounds us, particularly if you are a small or medium-sized enterprise (SME). The Federation of Small Businesses this month warned that more than 250,000 UK firms risk going bust this year. This is a particularly hard scenario for young people who have just joined – or are just about to – the workforce. Many jobs in sectors they tended to work in have gone, perhaps forever.

We have gone through two enormous upheavals, the reverberations of which are continuing – first the pandemic and then Brexit. And now we may be facing a resurgence of serious inflation. With consumers already having to contend with the effects of Covid-19 as well as historically low and potentially negative interest rates, a jump in inflation is the very last thing needed. Anyone with savings in a standard current account has seen the value of their money fall as interest rates continue to sit below inflation. The value of cash has eroded, hitting consumers’ wallets. Many household budgets are already at breaking point, so increases in everyday living costs and a further decrease in spending power are nothing short of disastrous.

Increasing numbers of consumers, in this bewildering world, are gradually becoming more aware of, and are turning to alternative ways to save and spend their money – I’m proud to be able to represent one of these alternative methods with Glint. Why have your money in a bank with such a low (if any) return and the risk of that bank investing your savings in things outside your control. If you put your money into gold, with Glint, the market may fluctuate now and again, but at least it’s proven to increase in value over time. I genuinely believe that Glint is one of the best ‘vaccines’ against unwanted inflation ‘virus’.

Until next week.

Jason