Many clients may think that the government, with its insistence that inflation is only around the 2 per cent mark, is living on another planet!
For many of our clients, the actual rate of inflation they face is likely to be much higher.
Indeed, according to the latest Bank of England quarterly survey published in November, public expectations of inflation in the UK have reached the highest level on record. The survey shows that expectations of the annual inflation rate for 2008 jumped from 2.7 per cent last August to 3 per cent in November, the highest since Bank’s survey began in 1999.
One of the key reasons between the apparent disparity between the official figure for inflation and what most of us actually experience lies in the measure adopted.
Since 2004, the government has used a measure called the Consumer Price Index or CPI so as to allow a comparison with inflation in the rest of Europe. The CPI was 2.1 per cent in October compared to 1.8 per cent in September. The other main measure of inflation is the Retail Price Index or RPI, which rose to 4.2 per cent in October from 3.9 per cent in September.
The CPI excludes a number of items that are included in RPI, notably council tax and owner-occupier housing costs such as mortgage interest payments and buildings insurance. The two are also calculated differently which further reduces CPI relative to RPI.
Looking ahead, many commentators expect inflation to increase – by whatever measure is used to calculate it. The reasons they say are rising oil prices, wage inflation in China where most of the electrical and electronic goods we buy are now made, and the rising cost of such important raw materials as steel, copper and aluminium, caused by the massive demand from the rapidly industrialising economies of China and India.
Clearly, if you’re looking to make the most with your savings and stay ahead of inflation, you will maximise your potential to achieve this by investing in a portfolio of assets which comprises a mixture of equities, bonds and commercial property which has been put together to properly reflect your attitude to risk and reward. If you want to preserve the spending power of your savings, keeping your money in a deposit account may not be the most suitable option.
Please note that the value of your investment may fluctuate over time and even go down. This type of investment should be seen as medium to long term. Investing in commercial property can carry additional risks where the money may be unavailable when required.
For a no-obligation consultation on building an investment portfolio to beat inflation, call Chris Rowley Financial Services on 01778 347473 or send us an email.