Are you underestimating the impact of inflation?

Are you underestimating the impact of inflation?

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Andy Cowan
Published: 17 Oct 2017 Updated: 13 Jun 2022

Inflation affects your buying power

One of the biggest influences on your finances is inflation. It hurts your buying power, puts a squeeze on your standard of living, and for those approaching or in retirement, savings pots will buy less as time goes on unless they continue to grow sufficiently.

UK Consumer Price Index inflation is calculated by the Office of National Statistics (ONS). It is based on the analysis of price changes across a basket of over 700 goods and services. But of course every household will differ in their exposure to these underlying items, so the overall official rate of inflation could be very different from the one you and your family experience

Introducing the Household Inflation Index

In our latest report, the Household Inflation Index, we explore how inflation has affected households with different levels of income over the last 20 years. We also find out who has had to work hardest to maintain their standard of living, and why. One key finding of our research is that the top 10% of UK households by income – those households with an income of over £78,500 per year – have experienced inflation of 65% over the last 20 years, almost 15% higher than the typical household.

A financial plan and investment strategy can help you beat inflation

In developing a plan for future financial security, we believe it is vital that a financial planner understands your personal lifestyle aspirations and goals, while factoring in the potential impact of inflation over time. It is also important to implement an appropriate investment strategy that will exceed the potential impact of inflation on your wealth.

While it is important to hold sufficient funds in cash to meet day-to-day needs and an unforeseen emergency – such as an unexpected loss of employment – one of the biggest mistakes many people make is to hold too much in cash for long periods of time. Savings and investments need to deliver a return in line with inflation just to stand still in real terms. We believe the best way to beat inflation is to build and manage a diversified investment portfolio that can preserve and grow the real value of your money over time.

For more information please download the full report or contact us on 020 7189 2400.


This article was previously published on Tilney prior to the launch of Evelyn Partners.