How to beat inflation?

Middle_of_the_Road

Bobziz said:

Middle_of_the_Road said:

What have we got to show for all these years of economic growth....in this country?

Depends who you mean by 'we'.

Everyone, as a society. I think you knew what I meant, but if you feel we, the UK are making the most of our resources and abilities, I understand why you would ask.

sevenhills

Middle_of_the_Road said:

adindas said:

Middle_of_the_Road said:

No one ever beats inflation. The only mechanism to do so, is deflation.
Reduce the effect of inflation, sure.

Middle_of_the_Road said:

Prism said:

Middle_of_the_Road said:

No one ever beats inflation. The only mechanism to do so, is deflation.
Reduce the effect of inflation, sure.

Over the long term people who invest in stocks and shares do usually beat inflation. That includes anyone who puts money into a workplace or personal pension.

Agreed, they will "out perform" inflation, and have a larger net worth.

That net worth though ,will still be at the mercy of inflation.

Inflation hurts the winners, and the losers, not equally, but never the less, it is, a parasite.

Moderate inflation is often associated with economic growth. Although high inflation, uncontrolled inflation hurts an economy, deflation, is not desirable either.

https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Inflation

"When prices are falling, consumers delay making purchases if they can, anticipating lower prices in the future. For the economy this means less economic activity, less income generated by producers, and lower economic growth. Japan is one country with a long period of nearly no economic growth, largely because of deflation"

10 Common Effects of Inflation

https://www.investopedia.com/articles/insights/122016/9-common-effects-inflation.asp

That's all very well and good. What I would like to know is-

What have we got to show for all these years of economic growth....in this country?

When growth is mentioned in the media, it isn't about you or me getting richer. Growth in the economy can be as simple as a larger population making more stuff.

Middle_of_the_Road

sevenhills said:

Middle_of_the_Road said:

adindas said:

Middle_of_the_Road said:

No one ever beats inflation. The only mechanism to do so, is deflation.
Reduce the effect of inflation, sure.

Middle_of_the_Road said:

Prism said:

Middle_of_the_Road said:

No one ever beats inflation. The only mechanism to do so, is deflation.
Reduce the effect of inflation, sure.

Over the long term people who invest in stocks and shares do usually beat inflation. That includes anyone who puts money into a workplace or personal pension.

Agreed, they will "out perform" inflation, and have a larger net worth.

That net worth though ,will still be at the mercy of inflation.

Inflation hurts the winners, and the losers, not equally, but never the less, it is, a parasite.

Moderate inflation is often associated with economic growth. Although high inflation, uncontrolled inflation hurts an economy, deflation, is not desirable either.

https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Inflation

"When prices are falling, consumers delay making purchases if they can, anticipating lower prices in the future. For the economy this means less economic activity, less income generated by producers, and lower economic growth. Japan is one country with a long period of nearly no economic growth, largely because of deflation"

10 Common Effects of Inflation

https://www.investopedia.com/articles/insights/122016/9-common-effects-inflation.asp

That's all very well and good. What I would like to know is-

What have we got to show for all these years of economic growth....in this country?

When growth is mentioned in the media, it isn't about you or me getting richer. Growth in the economy can be as simple as a larger population making more stuff.

Thanks, I understand growth and the economy. I was questioning the state of our economy, the decisions, actions or inactions, that have brought us here.

eskbanker

sevenhills said:

Middle_of_the_Road said:

No one ever beats inflation. The only mechanism to do so, is deflation.
Reduce the effect of inflation, sure.

That is the title of the thread, but really all that we need to do, is beat the most common savings rate, so around 3%, that's easy.

Why do you see beating a savings rate as a target, rather than beating inflation?  If, for the sake of argument, you'd invested in something that returned 7-8% when inflation was at 10%, would you consider yourself to have 'won', simply on the basis that you'd lost less than some others?

InvesterJones

Inflation only applies at the point of spending, so one way to beat it is to spend less, if possible - the increased prices on the things you must buy might be offset by not buying other things that have also increased in price.

The other spending based approach is conversely to bring forward those purchases that you must buy - the inflating asset is now yours rather than external, so inflation doesn't affect you regarding that purchase (cf depreciation).

What a lot of savers are concerned with are the prices of future, necessary, purchases so what effect inflation has on their purchasing power. If the money is coming from salary then negotiating a salary increase in line with inflation will retain purchasing power - higher-ups generally don't like this and it does have the possibility of making high inflation self-fulfilling.

Another approach is to invest in yourself with the hope of securing a better job in the future - the asset of your own skills/competencies is almost certain to be inflation proof.

But what about those looking after a pot of money and who don't want to spend it now? That's trickier and it depends on the timeframe (and therefore acceptable volatility) that you'll be thinking of accessing it. The longer you can leave it, the more volatility you can stomach to allow returns to revert to mean, which means that in some cases your timescale will dictate you can't beat short term inflation, only mitigate it. And to some extent, how much risk you want to take affects potential return and therefore inflation beatability - a lottery win is perhaps the most extreme (maybe along with crypto ) version of chasing high reward at high risk - but if it came off you'd definitely say it was inflation beating

DannyCarey

The only way to beat inflation is to risk your money in the stock market or buy 'appreciating' assets like property. 

Malthusian

Middle_of_the_Road said:

That's all very well and good. What I would like to know is-

What have we got to show for all these years of economic growth....in this country?

"Apart from central heating, superfast broadband, better telecommunications, life-saving advances in medicine and healthcare, the increasing prevalence of the 4 day week, working from home, electric cars, wide availablity of delicious food and drink from all corners of the globe, overseas holidays becoming the norm rather than a luxury, a collapse in smoking rates, and continuous rising incomes for those on minimum wage and state pension, what have the Romans ever done for us?"

sevenhills said:

When growth is mentioned in the media, it isn't about you or me getting richer. Growth in the economy can be as simple as a larger population making more stuff.

If the economy is growing solely because the population is growing, that means more people are coming to live here, as the indigenous population don't produce enough babies even to replace the ones who snuff it. That in turn means more people are improving their standard of living by emigrating. Rejoice.
And someone moving to our area and opening a curry restaurant or a tech company where one didn't exist before does make you and me richer, even if our personal income is the same.

GeoffTF

Malthusian said:
If the economy is growing solely because the population is growing, that means more people are coming to live here, as the indigenous population don't produce enough babies even to replace the ones who snuff it.

Here is GDP growth per capita for the UK:

https://data.worldbank.org/indicator/NY.GDP.PCAP.KN?locations=GB

It rose steadily until 2008, but has not made significant progress since then. After inflation earnings followed a similar pattern:

https://www.economicvoice.com/chart-of-the-week-historical-real-average-salary.

These changes mostly been driven by changes in the global economy, rather than local issues.

Frequentlyhere

Albermarle said:

Personally I would not be surprised if fixed term savings taken out in the last 4 months or so, start to beat/equal inflation by the end of this year, as inflation is predicted to start dropping quickly. It could even be that those with long term fixes at 4 to 5%  may well find themselves ahead of inflation for a significant period.
Nobody knows for sure of course, as is the same with the outlook for investments, which may or may not quickly make up the double losses endured in 2022 ( inflation and markets down at the same time) 

I think @Albermarle 's point is worth reiterating here.

Inflation is backwards looking whilst the interest we earn now is forward looking. Whilst the long term solution to keeping (and hopefully growing) wealth has to be in equities, it's certainly conceivable that the return of well-saved cash 1 year's hence will be marginally positive.

Voyager2002

subjecttocontract said:

It has been argued that those who don't own property, don't have savings and claim benefits are the real winners. Generally their standard of housing & living has improved over the last 100 years irrespective of inflation & cost of living. We no longer have Victorian (or Edwardian) levels of real poverty and slum housing.

It has declined enormously in the years since 1979.