Is It Time To Worry About Inflation?

If you prefer your glass half-empty then good news! There will be plenty of opportunities to find something to worry about at the moment! The economic recovery from the pandemic, rising global tensions and the many staff shortages in the news are enough to make the brightest of optimists’ sour. And now, there are even fears that the policymakers could “choke off” the economic recovery because of worries about (you guessed it!) “inflation.”

In the recent past, it has been ‘deflation’ rather than ‘inflation’ that has given most economies cause for concern. As you will undoubtedly know (!) from past posts, deflation can, of course, cause economies to stagnate.

Seemingly overnight, the effects of Covid are causing prices to rise, and ‘supply chain inflation’ seems to be the buzz phrase of the moment. Simply put, manufacturers are having to pay more for raw materials because of the Covid-related delays and disruption. That cost carries down the line, and inevitably, this will result in higher prices to consumers.

What do the experts say?

Andy Haldane, the Bank of England’s departing chief economist, warns that inflation is ‘rising fast.’ So fast, in fact, that it could reach nearly 4% this year – well above the Bank’s target rate of 2%.

Meanwhile, the Bank’s Monetary Policy Committee is slightly less hawkish. They only expect inflation to go above 3% ‘for a temporary period.’ The Resolution Foundation, a well-known think tank, sides with Mr Haldane. They believe that as the economy opens up and consumers start to spend the savings they accumulated during lockdown, inflation will be driven up.

Concerns are also being voiced in Europe. The continent has suffered from too little inflation for almost the last decade. Meanwhile, in the US, the Wall Street Journal has been at great pain to point out that it is supply problems causing the rise in prices, not an increase in consumer demand.

Irrespective of who is right or wrong, inflation is something worth keeping an eye on. Inflation has the potential to impact the value of savings and investments, and interest rates paid on deposit accounts remain at, or very close to, historic lows. If inflation does reach 4% then a deposit account paying less than 1% is going to look remarkably unattractive.

Take heart though! As with most things, it’s not all doom and gloom – and the good news is that a little planning goes a long way. Regular contact with your financial adviser and regular reviews of portfolios remains as important as ever.

You can rest assured we will be keeping a close eye on the inflation figures to ensure that our clients are kept fully updated. Then of course, if any necessary action needs to be taken, we will do so at the appropriate time.


As always, if you would like to speak to us about your savings and investments, we’d be delighted to see how we can help. So, please do call us on 01243 767 469, or email us from our contact page and someone will be in touch!

Written by Ian Barnett

Ian is an experienced Chartered Financial Planner as well as being a Fellow of the Personal Finance Society, with over 25 years’ experience in the financial services industry.  With a broad range of client experience and expertise, Ian specialises in financial matters from Pre-Retirement Planning to Inheritance Tax Planning and all points in between.

Want to Speak to a Financial Adviser?

As always, if you would like to speak to one of our reputable, independent financial advisers, please do call us on 01243 767 469. Alternatively, you can email us from our contact page, and an adviser will be in touch.