Inflation hits 5.4% in December

With the latest figures from the Office for National Statistics (ONS) being released on Wednesday, 19th January, the rate of inflation continues to rise. 

In the 12 months to December 2021, the rate of inflation has increased again and stands at 5.4%, up from 5.1% in November. In November, inflation was the highest it had been in a decade (since September 2011). Now, with December’s figures, inflation is the highest it’s been in 30 years, since March 1992, when interest rates were at 10.50% and continues the worrying trend of month-on-month increases.

Why is the inflation rate continuing to rise?

As we touched upon in our November inflation article, supply chain problems are playing a big hand in the continual rise in inflation rates. There is  a lack of essential workers related to distribution such as suitable lorry drivers. 

Adding to this, basic building materials that are needed for the production of many different products are seeing worldwide shortages.

For example, the computer chip – an essential component for many digital devices – is currently in short supply around the globe. Because of this, anything that requires a computer chip , is having to increase in price to compensate. With the supply deceasing while the demand for these products stays the same, inflation is an inevitable side effect.  

How will this affect me?

Rising inflation will directly affect the pounds in your pocket. For example, if the price of a bottle milk is £1, and inflation is increasing by 5%, then your bottle of milk will cost you 1.05p or 5p more. Or, in other words, the spending power of the money you have decreases by 5%. Add that rise to your whole shopping basket, your gas and electric bills and so on and you’ll soon start feeling the pinch.

In a healthy economy, average pay would rise to keep in line with inflation. However, separate ONS figures issued on Tuesday, 18th January, revealed that average pay rises were failing to keep up with the rise in the cost of living, with regular pay falling 1% in November compared with the same month the previous year. 

With wages not increasing in line with the ever-rising rate of inflation, individuals will find it harder to cover basic living costs than ever before. 

Director at the Institute for Fiscal Studies Paul Johnson explained how those on lower incomes would be hit the hardest by the inflation increases "Everyone, particularly those on modest incomes, has had a long period of wages not really growing any faster than prices over the last decade, so another increase at this point is going to be particularly painful," he said.

Adding to this, the general cost of living is only increasing with these rising inflation rates. Second hand cars are now costing an estimated 28% more than they did last January (2021). Energy bills and fuel hikes continue to climb, with the ONS revealing that the inflation of household utility bills is the highest it's been since November 2011. These hikes are expected to continue into April, where a new energy price could see household energy bills hiked by 50%. 

We at The Private Office understand the stress surrounding the current economic climate and can help you make the right financial decisions in these uncertain times. 

If you’d like to know more, request a free non-committal initial consultation with one of our team or give us a call on 0333 323 9065 and see how we can help protect your wealth.

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What impact does higher inflation have on cash savings?

We’ve produced a brand new, easy to use inflation calculator to illustrate how inflation can destroys your wealth and spending power without you even realising. Our calculator will show you how much you could be losing out by.

For example, if you have a deposit of £50,000 sitting in an account with your high street bank earning 0.01%, your money will have halved in real terms after 13 years – it will be worth just £25,270.

Have a go with the calculator today to see how inflation might affect your savings.