You need to calculate your personal inflation rate

You need to calculate your personal inflation rate


I am about to suffer from the painful personal experience of inflation: starting from late November, my electricity and gas bills will rise by about 25%.

My low-cost fixed-price electricity price will expire at a particularly unfortunate time and be replaced by my energy company’s variable electricity price-or a new fixed-cost electricity price that is too high.

Of course, we have millions of people in the same situation, although not everyone lives in airy Edwardian houses with creaking doors and windows. I know that my fault is being attracted by the charm of the old house and living in a country with the oldest housing stock in the world.

But this does remind me of price increases.The inflation rate has risen sharply since the summer to 3.1% in September, in line with Bank of England’s expectations Further increaseBy 5% next year, we can all expect the prices we pay for goods and services will rise.

This is worrying because we have become accustomed to much lower interest rates in recent years. In addition, as our energy bill shows, the increase does not occur in steady increments, but in unpleasant, unpredictable jumps.

In addition, inflation will not hit us all equally. The National Bureau of Statistics is the government’s statistical agency, and its consumer price index is weighted based on a package of about 720 goods and services, according to the purchasing habits of ordinary households.

But all of us have different preferences and restrictions, especially our income. Under normal circumstances, the poor spend a much higher proportion of their income on food and other basic living aspects, while the rich can choose to go out, travel and change cars frequently.

In the case of low inflation, there is not much difference in the inflation rate of different social groups, but poor families bear the brunt. Energy prices have risen sharply in the decade to 2015.

But now that the overall inflation rate is rising, we can expect large fluctuations in personal prices, which will have an uneven impact on people. For example, data from the National Bureau of Statistics of the United Kingdom for the year to September shows that because gasoline prices have increased transportation costs and automakers have increased prices, the prices of goods purchased by wealthy people have increased more than average.

According to the National Bureau of Statistics of the United Kingdom, in the year to September 2021, prices for the highest-income tenths of households increased by 3.7%, while prices for the poorest 10% of households increased by 2.8%.

If current wage increases in heavily stressed industries such as transportation translate into broader increases in labor costs, this trend may continue for months or even longer. The government encourages employers to pay more at the low end, especially in social welfare.Very correct-except for the highest income group, almost everyone’s employment pay is increasing Depressed for more than ten years, As the independent budget accountability office pointed out in its budget report.

Therefore, it is time for us to control our own inflation outlook more strongly. In some enlightened regions, including Canada and the Eurozone, authorities provide websites to help people calculate personal inflation rates by entering their spending information.

In the UK, although ONS has released relevant data, there is no such thing.On the contrary, according to Google, we have a BBC website calculator (it can’t be used now), and it seems that there is only another one. Las Bones, Wealth advisor. In a country that is proud of its financial services industry, a terrible show.

Even seemingly small differences in inflation rates will accumulate through compounding over time. I used the Rathbones calculator to calculate my own inflation rate of 3.7%, which is 0.6% higher than the average. For more than 10 years, this means that my household price basket has risen by 44%, compared to an average of 36%.

This is calculated in accordance with the current inflation rate-if the average inflation rate rises to 5% next year and then remains at that level, the 10-year increase will reach 63%. Considering the current wage pressures, the long-term staff shortage in the industry, immigration control and the aging population, who wants to estimate how much social care costs might increase in this situation?

Not surprisingly, in the Opinium poll released by Fidelity this week, the investment company’s cost of living (75%) and inflation (53%) topped the respondents’ post-budget concerns. Far higher than Covid’s 36%.

Ian Browne, a retirement expert at Quilter, a wealth advisory firm, said: “Resolving financial inflationary pressure is the cornerstone of financial planning.” This is not just about calculating how much your current budget may be compressed, but also Pay attention to the big expenses in the future-such as redecorating the house.

Not to spend the whole story. Inflation will also affect our income. The salaries of large employers usually reflect inflation, but there is no legal requirement to do so. The increase in wages must ultimately be driven by increased productivity. Therefore, if you are in an industry with low profit margins and low productivity, now is a good time to consider changing jobs, especially when the company currently reports a large number of job openings.

At the same time, state pensions are still protected by triple lock-in, in which case they will grow each year at the highest rate of inflation, average income growth, and 2.5%. The suspension may increase next year Doubts about the sanctity of promises, but given the weight of pensioners in the voting population, this arrangement looks safer than many future income promises.

Members of fixed-benefit plans—current and future pensioners—can also usually trust their fund’s connection with inflation, unless there is a huge financial shock. But those with fixed payment arrangements face uncertainty. It is important to consider whether the fund is properly positioned for inflation: broadly speaking, the traditional bond/stock balance firmly leans toward stocks, and stocks tend to perform better than fixed income during periods of inflation.

Few people now buy fixed-income annuities, which are usually not protected from inflation. But elderly pensioners who make such investments need to be aware that if inflation persists, real income will be squeezed.

For many savers, cash is a bigger bargaining chip, especially during the pandemic, when the bank balances of wealthy families have increased due to lack of travel opportunities and other reasons.Although the Bank of England Persevere yesterday, Keeping the base interest rate at 0.1%, market interest rates are climbing-this should be a good thing for depositors.

But be aware that what really matters is the rate of return after inflation. Last year, when the inflation rate averaged 0.8%, a 1% fixed deposit meant that the actual rate of return was only 0.2%. If the inflation rate reaches 5% next year, then the deposit interest rate needs 5.2% to make the same money. Unlikely. Therefore, considering diversification again, it may be that the motivation to increase shareholding will increase.

None of this is for fear of inflation. No one predicted that the out-of-control inflation of the 1970s would repeat itself. But the low-inflation environment of the past decade seems to be over, and now is a good time to take stock.

Stefan Wagstyl is the editor of FT Money and FT Wealth. e-mail: [email protected]. Twitter: @stefanwagstyl

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