Inflation is vital, as we keep saying. The ability for people to plan-ahead and gently encourage us all to spend our money is vital and this is why steady, managed inflation is important. A figure of around 2% is seen as “economically required” long term. Why? – Well imagine if the price of bread rose 100% a year, (ie: doubling every year along with everything else you may want to buy), if you have a £10 note today you would spend it as quickly as possible given everything will soon cost you twice as much! This then means people stop saving which means lower investment in business’s and long-term vehicles.
When inflation takes hold, it is near impossible to bring back under control and hence the worlds central banks are targeted to maintain around a 2% inflation rate. To demonstrate how serious inflation can be – high levels of inflation are largely regarded as being a major factor in the reason for World War 2 and the rise of Hitler! – Not good!
During a recent Federal Reserve announcement (in the US), the chair (Jerome Powell) announced that the Fed would become “more tolerant of inflation passing the 2% mark”. Modern economic theory is facing unprecedented challenges but in our opinion, inflation will always remain the key indicator to watch. Inflation in the UWhere the US goes, perhaps the UK and other developed countries will to? As always, we will continue to watch this space! Get in touch with your local experts to build your very own Financial Fortress!