Inflation figures for August are out and whilst not a reprieve, the Consumer Prices Index (CPI) rate for the 12 months to August 2022 was down slightly from 10.1% in July – but still an eye-watering 9.9%. This means that on average, the cost of things that we buy has gone up by nearly 10%.
Not everything in the Consumer Prices Index ‘shopping basket’ rises at the same pace though and there are even some items that have fallen in the last month! The biggest contributor to a drop in the rate of inflation between July and August this year, was the price of fuel at the petrol pump. The ONS figures showed that petrol prices dropped by 14p a litre in August – finally reflecting the global fall in oil prices.
One of the largest contributors to continuing high inflation is the increase in food prices, an overall annual increase of 13.4%. As this is something we can’t avoid, it is an issue for all of us. The ONS reports that it’s the staple goods that are rising in price the most – so the price of milk, cheese and eggs for example, has increased by over 22% in the 12 months to August.
Let’s put this into context. If your food shop cost £100 last year, an increase of 13% means that it will now cost £113. If your £100 in the bank only earns 0.1% that means your £100 will become £100.10 – so it cannot keep up with the price increases and therefore some people may be forced to dip into capital to make up the shortfall. Thus making it even more difficult to keep up – as less capital means even less interest.
As well as those staple items, some other previously cheaper options are also increasing – in particular the price of chicken. The Times carried out some research earlier in the year, to check exactly how much the ingredients for a typical roast dinner were rising by, and in just four months, between February and May this year, the cost of several roast dinner ingredients increased by nearly 10% on average.
According to the BBC, the boss of the Co-op supermarkets warned that chicken could become as expensive as beef – he cited that the price of a chilled, oven ready chicken had increased from £2.50 to £3 per kilo in the last two years – that’s an increase of 20%.
The good news for those that enjoy a glass of wine with their Sunday lunch, is that over the last 12 months, the price of wine has increased by just 1.8% on average – compare that to the 10% increase in mineral waters, soft drinks and juices.
With different items rising by different levels, as we've reported before your own personal rate of inflation could be higher or lower than the CPI rate, depending on your spending habits. The ONS has recently launched its personal inflation calculator. Have a go and see how much your cost of living is rising by.
Regardless of whether your personal inflation rate is higher or lower than CPI, it's still likely to be high, but with interest rates rising, you can at least make your cash work harder, so that you can mitigate the effects of inflation.
In the example earlier, I looked at how £100 would rise if left to languish in a poor paying account. If that money was instead put into the best paying 1-year bond earning 3.40%, although it still wouldn't keep up with the rising cost of items we are buying, it'll be better - £103.40 after 12 months rather the £100.10.
Of course, if you’re worried about rising inflation and think you might be holding too much in cash, there may be other options. Perhaps you'd like to explore these, so why not get in touch. We’re currently offering all those with £100,000 or more in savings, investments or pensions a FREE financial planning review with one of our TPO colleagues, worth £500. You can find out more here.
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