Our senior personal finance analyst explains what is powering inflation, savings, and what consumers can do to help themselves.
Commenting on the latest ONS inflation figures, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Price rises are way higher than we are used to and keeping a lid on spending is now a daily battle. Many cash-strapped households simply cannot tighten their belts any further amid the escalation of the cost of living squeeze, which overshadows growth in jobs and wages. The financial pressure is set to become more acute in the spring when the energy price cap is lifted by 54% and national insurance contributions rise.
“With inflation so high, we all need to pay closer attention to our expenditure. The rising cost of living means we are saving less to maintain current levels of spending. If you don’t use a budget to manage your spending, it’s difficult to know where you stand. Everyone has their own inflation number – it’s worth keeping a spreadsheet of your own spending habits so you can get a better idea of the goods and services that are eating most into your budget, and where you could cut back.”
What’s powering inflation?
“Inflation continues to be powered by higher energy and transport costs – the latter largely due to pricier motor fuels. Many of us have had to reconsider how often we drive to mitigate the impact of the bumper cost of fuel on budgets.
“Food prices remains on the up, with food manufacturers and supermarkets announcing price hike for 2022, citing the higher costs of ingredients, transportation, worker shortages and higher wages.
“Even if you strip out energy, food, alcohol and tobacco, the picture is still grim, with core inflation rising 4.4% in January from 4.2% in December. There has also been an eye-watering surge in the cost of things we don’t buy regularly. Used car prices have grown 28.7% since January 2021.”
Inflation on savings
“Inflation erodes the purchasing power of cash, which is compounded by the fact that many banks have been slow in passing down the increases in the rate of interest to savers – if at all. Many banks are not in a rush to attract savers because they now have so much cash in their coffers, having been inundated with deposits from consumers since the start of the pandemic.
“While the high rate of inflation means that most people’s savings are effectively losing value, it still pays to shop around for the best deal.
“If you’re planning on putting money aside for five years or more, it is worth considering the stock market instead. While it fluctuates on a day-to-day basis, when smoothed over time, a well-diversified portfolio can offer a sensible way to help beat inflation. Even a ‘middle of the pack’ fund is likely to compare favourably with cash over the long term, so you don’t need to be an expert stock-picker to benefit.”
- A recent poll* by Opinium for interactive investor, found that more than half (52%) of UK consumers felt they are being ripped off over the cost of energy
- 42% of respondents said they pay over the odds for fuel or transport and one in four said the same about their spend on groceries.
- A separate survey** of 5,000 investors by interactive investor found that 80% of investors are following the ‘keep calm and do nothing’ mantra in response to rising inflation.
Notes to editors
*The poll of 2,000 UK adults was conducted by Opinium for interactive investor between 24 and 25 January 2022.
** The poll, of 4,983 interactive investor website visitors was conducted between 26 January and 7 February 2022.
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