What Does High Inflation Mean For Me?

March 1, 2022

We’re sure you’ve already heard all about inflation in the UK. After all, it’s been one of the biggest topics in the news over the past few weeks. While many of you will understand what inflation means, we’re sure, it can be hard to figure out what high inflation will actually mean for your finances.

That’s exactly what we’re going to discuss in this blog, so read on to find out all about how inflation could affect your money, in terms of both the challenges it presents, as well as some possible opportunities.

How high is inflation?

Inflation in the UK is currently 5.5%, up from 5.4% in December. Some analysts predict that inflation could go as high as 7% this year. This is the highest that inflation has been for 30 years, so this is a fairly unusual situation, and unprecedented in a lot of investor’s lifetimes.

Your money won’t go as far

The first thing to understand about inflation is that what it actually measures is the price of various goods. While you might not find specific price increase in the products that you’re purchasing, many products are getting more expensive, from food to petrol to household supplies.

So, you’ll likely find that the money in your pocket simply won’t go as far. Of course, every business is different, but you’ll likely find prices increasing across the goods and services that you buy.

Your investments may not keep up

You might think that businesses putting prices up would be good for your investments. This is true, to an extent, and this is where high inflation can cause issues. A gentle amount of inflation (around 2%) is good for businesses and therefore your investments, but if inflation is too high, businesses will be spending more to produce their products or services.

Because of this, they may not be in a financial position to pass on profits as dividends, and share prices will generally be under pressure as there is a high amount of uncertainty in the markets. However, periods of high growth will naturally produce companies that do well and capitalise on growth sectors – so there’s definitely opportunity in the stock market if you know where to look.

Savings accounts and other low interest rate investments also won’t keep up, as interest rates are significantly behind the inflation rate.

Borrowing is more expensive

Borrowing also becomes more expensive in a high inflation environment, although there can be a time lag on this being felt. As many mortgages are on fixed rates, you won’t feel the effect of inflation on these yet, unless you are currently looking to remortgage.

It can make borrowing more expensive for businesses however, which means capital expenditure projects can be affected.

Overall cost of living squeeze

Of course, inflation is just one aspect of the financial picture at the moment. There are a lot of other pressures on people’s wallets, and this is creating an overall cost of living squeeze. From National Insurance going up, huge gas and electricity bill increases, to price hikes in services like TV and broadband, people’s finances are under a lot of pressure.

Because of this, there’s never been a more important time to ensure that you’re fully in control of your finances and investments.

So, what can you do?

Well, the first thing to do is ensure that you fully review your finances to understand how high inflation and price increases could affect you. Do you need to adjust your budgets? Are you better off saving more or less money at the moment?

It’s also worth looking over your investment strategy and portfolio. In times of high inflation, it’s challenging for investments to keep up, so make sure your money is working as hard for you as it possibly can.

We would also, of course, recommend speaking to a financial adviser, as there are lots of investment opportunities available during periods of high inflation, and these can be very easy to miss.

Find out more about what GreenSky Wealth can offer you here, or get in touch with us here.

The value of investments can fall as well as rise. You may not get back what you invest.