It’s hard to turn on the news and not hear the word inflation being mentioned, shortly followed by the “cost of living crisis”.
For many in the UK, this is a real issue and perhaps as a society, it’s an opportunity for those less affected, to support those who are. A good way to boost wellbeing is to provide planned support, via time or money, to causes that mean something to you.
What is inflation?
In short, it shows the rate that the same basket of goods and services has increased over the past year. Naturally we have done a podcast on this that goes in to more detail, click here to listen to Episode 20 – The Inflation Basket.
The Bank of England have a target of 2% a year for the Consumer Price Index (CPI). To its credit, it has managed this pretty well for the past couple of decades. However, May 2022’s figure was at 9.1%.
Why is it so high?
There are many factors as to why this has happened. Some of these include:
- To support the economy during the Covid restrictions, the Bank of England kept interest rates low and effectively printed money. This means that people/businesses had more money to spend, which pushed up prices as there is high demand for goods and services.
- Supply issues as demands on materials have outstripped production. For example, China have still been pursuing a covid restriction strategy, which has hampered production. Less supply means more demand and prices increase.
- Russia’s invasion of Ukraine sharply increasing the price of energy as the West started to turn off its supply of Russian Gas.
- Russia and Ukraine are major agricultural suppliers, for example wheat. With supplies reduced, this pushed up prices.
- Large job vacancies in the UK pushes up wages as employers compete for talent. This means businesses need to increase the prices of their goods and services.
What is the Bank of England Doing?
- Increase interest rates so it’s more attractive to save and less attractive to borrow. This leads to people spending less.
- Turn off the money printer and reduce the money in the system.
What Next?
What does this mean for you?
Also know that we are here to support you, so please feel free to contact us if you would like to discuss this further. Email Ovation: enquiries@ovationys.wpenginepowered.com or call on 0117 942 4333.
