Inflation and Savings
Inflation is the rise in the prices of goods. Higher prices can be good as profits can increase, however they can equally be bad, as consumers get less for their money and savings.
Savers who utilise savings accounts with banks are comparatively better off when inflation is low as their interest earned from the bank might exceed the rise in prices, meaning they are getting financially better off over time as they can buy more with their money. However those with large deposits at the bank when inflation is higher than interest rates become comparatively worse off, as over time they can buy less.
The Office of National Statistics (ONS) have confirmed that we have exceeded the Bank of England’s expectation/target for inflation in 2017 (2%), with the increase in prices over the 12 months to the end of July being a full 0.6% higher at at 2.6%.
This rise in prices hasn’t affected consumer spending as much as generally anticipated, however many analysts believe that certain areas, such as food spending, might see a sharp decline if prices continue to rise, particularly with high-end supermarket food.
Oil prices have yet to dramatically recover, however many experts think this recovery will be imminent (although some have held this belief for a while). Once oil prices rise, the likely costs of the majority of consumer goods would increase further as a result of packaging and transport costs increasing.
Affect on Consumers
Prices increasing at this higher rate of 2.6% hits the pockets of those with savings accounts with banks the hardest, as the majority of savings accounts are paying interest rates of considerably less than 2.6%, which results in savers money being able to buy less , since prices have risen by more than their funds have grown.
If you would like to discuss your savings and where best to place them, please contact us to arrange a free review.