17th February 2013
The BBC’s economics correspondent Stephanie Flanders headlined a recent article on the Bank of England’s inflation report press conference as ‘Mervyn King still ne regrette rien’.
Flanders noted that the Bank of England’s inflation target is not just going to stay above inflation – it is going to be above 2.5 per cent for around 18 months – and it may break three per cent or more.
She writes: “The big lesson for right now from the inflation report and the press conference is that inflation is going to stay higher for longer”.
The Governor is effectively saying that a raised rate of inflation – certainly by the standards of this century – is going to be a fact of life for some considerable period of time to come.
There is little that individuals can do to change this national picture. You can’t, for example, remove the impact of energy prices, rail fares or tuition fees from the overall numbers. But you do face your own particular inflation. The Office for National Statistics calculates the consumer price index and retail price index from a basket of goods and services in slightly different ways resulting, usually, in a higher rate of RPI. It is unlikely that is your inflation exactly matches either, just as average families have never had 2.2 children. Yet you may be in a group that is particularly affected.
In the last couple of years, pensioners were certainly more affected by higher food and commodity prices. Indeed Mindful Money has reported on calls for the ONS to create an index specifically for pensioners for upgrading the state pension and other benefits and credits.
But whatever the public policy decisions, the big question for savers and investors is what can be done to mitigate the impact of inflation. It helps, for example, to make sure your savings are attracting the best interest rates and not falling prey to some banks offering teaser rates on savings products in year one which are then cut back in subsequent years. Websites such as Savingschampion can help you keep an eye on those savings rates.
There are other inflation coping strategies such as investing in National Savings & Investments products though availability can vary depending on the Government policy.
You may decide to move your portfolio into arguably riskier assets or adapt it to include more explicit inflation proofing. If you have an adviser and are concerned about inflation and its erosive effects, it may be worth getting in contact with them. Another increasingly popular option is to buy the bonds of single companies which can offer very generous rates, though you will be concentrating the risk to your capital. While we can’t offer specific help, we can give you information about the range of options and crucially what the associated risks may be.
But in the next few months, Mindful Money will be considering all of these options and strategies to give you as much information as possible to proof you against this stubborn rate of inflation, which, unfortunately the Governor seems quite relaxed about.