First things first, inflation is real even though we often over-look this! Remember how much a bag of crisps cost when you were a child? How much would a bag cost now? How many sweets were in a “10p mix up” whereas a 10p mix up probably doesn’t even exist anymore!! Inflation is the biggest threat to our client’s wealth long term and is therefore vitally important to wealth management.
Now, onto the headline figure of 0.2%. Bear in mind the Bank of England is required by law, to essentially maintain inflation at a steady 2% and in August 2020, the published CPI rate was a very low 0.2% – crikey! Better reduce the base rate then! The fact that CPI was 1% the month before shows the sharpness of the drop – so what’s going on?
When analysing the numbers, we can see the largest downward contribution came from the hospitality sector (0.44%) – could this be anything to do with “eat out to help out”? Also falling air fares and clothing made up the rest so perhaps not exactly unexpected after all.
The thing with inflation is, it is tested against the previous figure so if 0.2% is now the starting point surely it can only get higher right? With the world still reeling from the Corona-virus and consumers only just getting back to spending this may take a while!
So, what does this mean? More pressure on interest rates, as we have been warning for a while now – negative interest rates could well be on their way! Impossible you say? Watch this space…
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