March 2022

You’ll have undoubtedly heard about rising inflation and predictions of soaring living costs. In this month’s article, we look at what this could mean for you and why inflation is an important consideration when investing for your future. 

Commentators are calling next month ‘Awful April’, with energy costs, food prices and taxes all set to increase. Rising inflation has been blamed for mounting household bills, but what does that mean in practice and how can you protect your finances? 

What is inflation? 

Inflation measures the changing cost of goods and services over time. The price of what you buy can be affected by many different factors, like the cost of ingredients, energy, wages, transportation and more, so the amount you pay for something can rise and fall over time.  

The overall percentage rate of inflation used by the Bank of England is known as the Consumer Prices Index (CPI) and is calculated by the Office for National Statistics (ONS). Each month it checks the prices charged by a range of outlets for a ‘basket’ of around 700 goods and services to work out the average rise or fall. The specific goods and services in the basket change over time to reflect our shifting purchasing habits, but they include things people typically spend money on from food, drink and electricity to clothing, hairdressing and insurance.  

To keep prices stable, the Government sets a 2% inflation target. You might think that having negative inflation would be ideal, as we’d all get more for our money, but in general, a low, rising rate is better for the economy and job security. Slow increases persuade people to keep spending – rather than waiting for prices to fall – and give companies the confidence to continue investing in their products and services, employing staff and paying salaries. If inflation is rising too high though it can mean people can’t afford to buy the things they want, and businesses will have trouble keeping pace with the need to increase wages.  

What is the current inflation rate? 

Inflation has been climbing since early 2021 when the UK started to gradually recover from the initial economic impact of Covid-19. These rising prices were originally dismissed as ‘transitory’, created by anomalies and short-term supply chain problems caused by the pandemic, but they have proved to be more persistent than policymakers expected.  

The most recent CPI rate of inflation is 5.5%1. This has been driven by a spread of price rises including clothing, energy, furniture and food. The 5.5% figure is obviously way above the Government’s 2% target. This is why the Bank of England decided to increase the base rate in February to 0.5%, soon after raising it to 0.25%, with some economists predicting another rise later this year2

Yet despite this action, the Bank of England expects inflation to rise higher – peaking at 7.25% in April3, blaming rising energy prices and the increasing cost of core goods due to global bottlenecks. And although these pressures are expected to ease over time, high inflation could continue for the next year or two. 

What does this mean for me? 

The short-term impact of inflation is that, with prices rising, you may find your money isn’t going as far as it usually does and it’s likely that things will get worse before they get better. To prepare for continued price increases, it’s worth reviewing your spending to see whether any savings can be made. You might be paying for a gym membership or subscription service that you rarely or never use, so cancelling that will have an immediate impact on your outgoings, without affecting your standard of living. You could also consider steps like switching to a cheaper supermarket or product range, cutting down on eating out and making sure your home is as energy efficient as possible. You may want to consider waiting to make large purchases.  

Longer-term, high inflation can reduce the purchasing power of your savings, which could affect your plans for the future.  

Inflation and savers 

If you are working and are still in savings mode with a way to go until retirement, you’ll want to make sure that your finances remain on track to meet your goals.  

It’s important not to panic or make any hasty changes. Your adviser will already have factored inflation risk into your investment strategy and will be continuing to monitor your portfolio to ensure it is positioned to benefit from the prevailing economic environment. They will be able to discuss at your regular review any adjustments that need to be made to your overall strategy, but if you’re at all worried about how your finances are progressing, don’t hesitate to contact them in the meantime to talk it through. 

Inflation and retirement 

Inflation can hit specific segments of society harder than others. If you are approaching, or already in retirement, the prospect of rising inflation affecting your standard of living may be a real concern.  

People in retirement spend a larger proportion of their income on food and fuel, two sectors which the CPI breakdown tells us are currently seeing particularly large price increases. Research by Aviva found that the over-65s spend 12% of their income on groceries and 6% on energy, compared to 8% and 3% respectively for the under-30s4. In addition, many retirees are on a fixed pension or are reliant on their investments, and don’t generally have the option of asking their employer for a pay rise.  

If you’re struggling to make ends meet as prices rise, speak to your adviser about your options. You may be able to increase the amount of risk you take with part of your portfolio or generate additional income by switching to different types of investment. Releasing equity from your home may be another consideration, or withdrawing more money from your retirement pot. Your financial adviser will be able to talk about your specific circumstances and make sure that, as well having enough money to be comfortable now, you’ll have enough for the future too. Building wealth while you are working is an important part of retirement planning, but so too is ensuring that you draw on your assets and investments at a sustainable rate once you are retired.  

Next steps 

We have tools to help you visualise how inflation may impact your investment goals and how any changes we make to your investment strategy will affect your income now and in the future. Inflation may settle down towards the end of 2022, but the era of inflation being a non-issue is almost certainly over. Get in touch to discuss how it might affect your financial plan. 


  1. https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/d7g7/mm23 accessed 16/02/22
  2. https://www.cnbc.com/video/2021/12/23/bank-of-england-could-hike-interest-rates-twice-in-2022-economist.html
  3. https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2022/february-2022
  4. https://www.thisismoney.co.uk/money/article-10156989/Why-pensioners-feel-inflation-pinch-Elderly-face-tough-times.html