Any thoughts on inflation?

Workerdrone

Just a very simple post to open the discussion. I think we've been lucky to live through a low inflation period. I was expecting inflation to take after post the quantitive easing of 2008. If the future value of money is to be eroded what actions if any are you taking now?

cfw1994

It feels clear inflation will rise.  OECD suggests 3% by end of 2022.

I always feel there is a “personal” rate of inflation that could vary wildly from those headline rates….& there are many things in your personal lives with “wiggle room”.

Council tax is our biggest monthly outgoing: pretty sure ours rose around 5% last time 😱
To counter that, shopping around (& using topcashback, other cashback mechanisms are available 😉) reduced our car insurance costs by more (plus £40 each for the bother) 👍

Both are part of the ‘essential’ budget, so work to reduce those you can.  

I saw someone on the news suggesting if they had to put a sweater on at home because they cannot heat their house, then something is wrong.  Seriously?  We all have a right to be able to live in t-shirts at home?
I know energy is a massive topic currently, but I felt they were wrong!   
I bet many here grew up putting school clothes on under the covers because our childhood homes were so cold ❄️

For over a decade, my study at home was an over garage extension.  A lovely space, vaulted ceiling, but boy it could be cold in winter.  I wore a jumper, sometimes fingerless gloves, & had a small oil space heater under my desk: made that area cosy enough, whilst not heating the rest of the house: personal space heating starts with wearing a jumper, not blindly turning the heating up 😜

I worked with a lovely lady who once mentioned she had her home thermostat on 23 degrees….ours is usually no more than 19.

On the non-essentials side of things: budget for holidays, lattes, entertainments & luxuries…..it is easy to overspend on stuff, but with planning, it is also possible to manage it.

Main goal for me will be to not have too much cash in cash savings accounts (emergency funds plus a couple of years of income)….& probably weight more to equities.   Some will naturally be nervous about ‘the markets’ - we are always due a crash! - but in my simple head, it is the way to guard against inflation, & if I hope to live another 30+ years without a regular wage, I need to make some of those stocks grow.  

If you have a DC pot and some S&S ISA savings and have concerns over the LTA, put the ISA cash into the ‘riskier’ funds - you can afford for them to grow more over time 💰

Here endeth my Saturday sermon, have a great weekend 🤪

Nebulous2

I'm not sure if the pension forum is the right place for this discussion, but I'm doing ----- nothing. 

My utility company folded earlier this year and I was switched to EON with a guarantee I wouldn't pay more than I would have with the previous company until September. At the end of the month I jumped to a 2 year fix with Sainsburys. Got a deal which was worse than would have been available 6-8 weeks earlier, but is better than anything around now. 

Most of our big expenditure is covered, decent vehicles, just agreed a 3 year lease on an EV, prices are up £30 a month or so since I was quoted. Investments only bought in March / April were intended for the long haul and the intention is to let them run. 

trevjl

None at all and I am going to finish at 59 next year. I gave up listening to media hype and BS some years ago (especially the BBC) so I will carry on my sweet way and not worry about things I can't control !!!

Stubod

..yes I think higher inflation is now inevitable given the dramatic rise in energy costs and also council tax, (which I understand is not included in CPI calculations for reasons I don't really understand. The reality is that higher energy costs will also impact most other things that you buy. Also the government wants businesses to pay more to compensate for the recent reduction in universal credit, and would like to see the UK become a "high wage" country, and all this will have to be paid for?

As for what we are doing, there is not a lot we can do really except reduce any unnecessary "discretionary" spending.

Looking at our expenditure spreadsheets for the last 20 odd years has shown little change in our actual annual spend. (We had planned to spend more during our earlier years of retirement but covid has put a hold on that for the last 2 years anyway!)

Workerdrone

Nebulous2 said:

I'm not sure if the pension forum is the right place for this discussion, but I'm doing ----- nothing. 

Sorry I should have been clearer. I was thinking more in terms of how this will affect the accumulation phase of pension building. As I see it we have inflation on the horizon, coupled with a 5 year hold on the LTA (And rumours of an actual reduction to LTA in the autumn budget).

Seems pretty unfair to those of us who have cut out cloth as fine as we can to save as much as possible. The value of your money being eroded then an unfair cap in the form of LTA. If ever there was a good reason to scrap LTA altogether this is it. There are already limits on what tax relief can be gained. Its just a penalty on savvy investing.

tacpot12

When I retired at 53 my pension pot was 35% of the LTA, so I don't see any need to increase the LTA. 

Nebulous2

Workerdrone said:

Nebulous2 said:

I'm not sure if the pension forum is the right place for this discussion, but I'm doing ----- nothing. 

Sorry I should have been clearer. I was thinking more in terms of how this will affect the accumulation phase of pension building. As I see it we have inflation on the horizon, coupled with a 5 year hold on the LTA (And rumours of an actual reduction to LTA in the autumn budget).

Seems pretty unfair to those of us who have cut out cloth as fine as we can to save as much as possible. The value of your money being eroded then an unfair cap in the form of LTA. If ever there was a good reason to scrap LTA altogether this is it. There are already limits on what tax relief can be gained. Its just a penalty on savvy investing.

Scrapping LTA would have to combine with other changes to be viable. I thought the problems it has caused in the NHS with doctors would have focused minds - but apparently not.

Flat-rate tax relief, stop salary sacrifice and abolish the LTA would be relatively straightforward to my thinking......

Sunnylifeover50plan

I suppose an important question is how long a period of high (relatively) inflation might last. If it's linked to the post covid rebound and of limited duration it might not cause too much of a problem? if it becomes protracted and a feature going forward then it might be a different story. Higher Interest rates coupled with inflation seems to be something which might catch a few of us off guard in terms of strategy but even at my age, early fifties I have never really experienced the effects of high inflation or high interest rates, working for a bank I never paid more than 5% for a mortgage and normally much less.

Interesting times.

MarkCarnage

For the past 30-40 years, we have generally lived in an environment of usually benign disinflationary forces in relation to consumption of goods and services, and conversely there has been inflationary forces on asset prices generally. The catalysts for these have been similar. In essence, disinflation on the real price of labour, and inflation in the real value of capital, whether it be land, property, equities or bonds. 
I think that we have now reached a tipping point and these trends are in the process of reversing. The beneficiaries will be the suppliers of labour, and those with significant debt,  the losers will be those on fixed or capped inflation increase incomes.....and those who hold lots of cash or conventional bonds. 

[Deleted User]

There are inflationary and disinflationary forces at play.  Some short term. Others long term.  For example:

Energy prices = inflationary, short term.
Shortages, eg of semiconductors = inflationary, short term.
QE = ditto.
Protectionism = inflationary, long term. 

Population getting older = disinflationary, long term. 

Low economic growth = disinflationary, long term

Clearly there will be high inflation over some months.  After that?  Bond prices and the markets think the inflation will moderate.  I do too. Central Banks know exactly how to control inflation.  At some point they will be forced to act.