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  • Writer's pictureGeorge Callaghan

Attention: Inflation!

For those of you short of time then here is this blog in summary:

Prices are increasing

Pay attention


For those with more time, I’ll first introduce inflation, discuss its impact, and explore some responses.

Inflation refers to the increase in prices of a typical basket of goods over 12 months. For many years UK inflation has been relatively low, but it is presently increasing. We have been living in a low inflation environment for so many years most people don’t think much about it or factor it into their personal finance decisions. I am inviting you to begin to pay more attention to inflation – and to begin taking action.

Why does it matter? Well, because it hits personal finances in several ways. Perhaps the most obvious is that the purchasing power of money goes down. If you were used to spending £100 on groceries, then inflation means less goods going into your basket. For this reason, it hits those on fixed incomes particularly hard. It also means that money held in savings accounts paying rates of interest lower than inflation lose their purchasing power over time.

Inflation works insidiously over time.

Another consideration is the typical policy response to inflation: increased rates of interest. This means short term borrowing, like credit cards, become immediately more expensive and that longer term borrowing, such as mortgages, cost more per month. Clearly, given that mortgages can run into hundreds of thousands of pounds, small increases in interest rates can lead increased monthly repayments which knock family budgets.

What can you do about it? Firstly, recognise its importance and discuss what it might mean with household members. Secondly, look at your spending, where can you make changes so that the £100 grocery bill buys the same amount of goods, but from a cheaper source. Thirdly, think about increasing income, can you or other household members negotiate a salary increase? Start a side business? Take in a lodger? Move to a higher paying employer?

Then there are savings and investments to consider. As mentioned earlier, savings will lose purchasing power over time, but you still need a contingency fund – so make sure it is receiving the highest interest rate possible. Then there are investments. The risk/return debate around stocks and shares could take up a whole other blog, but over time, equities tend to offer higher rates of return. This potentially means they keep pace with or will provide above inflation returns. The implication here is that investing in stocks, shares and bonds is worth thinking about.

The takeaways here are that inflation is likely to be around for some time – and that this is likely to be accompanied by higher interest rates. While there is not much we as individuals can do about the macroeconomy, we do have influence over our spending and (over time) our income. It might be an idea to begin a conversation about inflation with other household members – and consider what changes you might make to income and spending.

If you want to discuss individual choices and possible actions, then get in touch with me at

George Callaghan, Money Coach

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