How we can all fight inflation

How we can all fight inflation
November 4, 2016 Cheryl Lewis
Learn how to fight inflation

Fight inflation today with help and advice from Cash Lady!

‘Inflation’ is one of those economic words that we hear often, but may not fully understand.

Simply, inflation is the name given to rising prices. As prices rise, money is worth less than before. Your income will not stretch as far. The cost of living goes up.

Whilst you do not have the same powers as the Bank of England, you can do your bit to fight inflation.

Understanding inflation

The Bank of England controls the Bank Rate (also called the Bank of England base rate) and is the interest rate that Bank of England charges banks for secured overnight lending. . This is the official interest rate (currently just 0.25%). It affects interest for both savers and borrowers.

This is the official interest rate (currently just 0.25%) and affects interest for both savers and borrowers.

Changes to the Bank Rate are intended to influence supply and demand. They have an impact on economic activity.

When demand for products and services rises, so does inflation. Prices go up, because of the higher demand.

When inflation is high, interest rates are typically increased. Borrowing money is not an attractive prospect. Saving is worthwhile. People spend less. Demand goes down.

When demand decreases, inflation begins to fall. Prices drop.

fight inflation by understanding it

When inflation is low, interest rates are decreased. People are more likely to borrow money, and less likely to store it away. They spend more.

By adjusting interest rates, the Bank of England can influence spending habits and can balance supply and demand.

The Consumer Price Index (CPI) and Retail Price Index (RPI) measure the average cost of consumer products and services. The price index rises and falls to show the changing cost of living.

Inflation can affect every aspect of financial life. The Bank of England aims for an optimal rate of 2%. In 1975, inflation peaked at 24%.

Research by the National Institute of Economic and Social Research (NIESR) has suggested inflation may rise to 4% in 2017. This is in part because of the Brexit vote.

To fight inflation on a personal level, there are several things that you can do.

Ways to fight inflation

Watch your savings

Usually, interest rates will increase with high inflation. Due to ongoing recession concerns, this has not happened for a while.

The Bank Rate has been kept deliberately low, to encourage spending and to reduce the effects of the recession.

A rise in inflation means that prices will go up. Unfortunately, the interest on your savings account will not follow suit.

If you have money in a savings account, it is likely that the value of your savings will be decreasing.

You will need to search for the savings accounts that offer the best interest rates. Some people consider investing in stocks and shares, but you should bear in mind that investing comes with extra risks. You may receive a higher interest rate, but could lose some of your capital.

Shop carefully

As inflation rises, you will notice that your groceries cost more. In fact, most things will become more expensive.

Be careful with your shopping.

Plan meals in advance. Run your weekly shopping list through a site like MySupermarket. Check prices and shop around.

You can also shop around to save money on energy bills, insurance and other larger investments. For your car fuel, visit PetrolPrices.

Look out for coupons, vouchers and discount codes. Sign up to cashback sites like Quidco and TopCashback, then remember to use them for your purchases.

Fighting inflation on a personal level will involve having a reliable household budget. If you do not already have one, now is the time to make one.

Think carefully about borrowing money

Debt costs are particularly troublesome at the moment.

The cost of living is going up. You will be spending more at the supermarket. The bills that come through your letterbox may be increasing as they come up for renewal.

Right now, interest rates are low. Quick loans today and credit cards can be tempting, when your money isn’t stretching as far.

If you experience a financial emergency, then a short-term loan may be a useful way to get through the crisis. If you borrow money, you should have a realistic repayment plan in mind.

Interest rates will increase. The cost of debt will rise. Bear this in mind, before applying for a loan.

An increasing number of people are finding that they are struggling to keep to their budgets.

It is important that you think of the long-term consequences, if you are considering borrowing money. Do not sign up to a long-term commitment that could cause a debt spiral further down the line.

Increase your skills and employability

As inflation increases, the cost of living is rising considerably.

Your wage or salary, even if it is increasing over time, may not be keeping up.

An annual pay rise, if you are fortunate enough to receive one, may sound like a positive thing. Sadly, it is likely that your income will not be rising enough to stay in line with your rising expenditure.

If you have any free time, and ideally some spare money, then this could be a good time to invest in learning new skills. Find ways to work towards promotion, or to move to a new company.

Be aware that moving to a new job may come with its own risks. Many businesses are suffering the ill effects of the current situation, just as individuals are. Ensure that you have confidence in the strength of any new company that you are moving to.

Limit any spending on luxuries

Whilst it’s true that savings rates are low at the moment, this should not deter you from setting your money aside.

With the cost of living set to increase further, your money will be spread more thinly over everything that you need.

Building a savings pot will prepare you for forthcoming rainy days.

fight inflation by limiting luxuries

This is a good time to forego expensive holidays and larger luxury items.

The money that you save can be used in big emergencies, such as a car breakdown, or will be a pot that you can dip into when the grocery bill is a little too high.

Every small saving counts. If you can find a way to set aside £50 a month now, then you need not worry if your grocery bill rises by £5 or £10 a week in the future.

Switch your current account

Many banks are continuing to offer incentives, encouraging new customers to switch to them for a reward payment.

Halifax currently offers a £100 reward. You could get £150 for switching to the co-operative bank. Other banks publish similar offers.

Other banks will provide you with a monthly reward, instead of (or as well as) a cash lump sum. The Halifax Reward Current Account pays a £5 bonus per month, as long as you meet a list of requirements.

Switching your bank account is easier than it sounds. If you haven’t done it before, it may help to know that your payments and Direct Debits are automatically transferred over. The whole process usually takes no more than 7 days.

Switching current accounts can be a handy way to earn a little extra cash, when bank balance boosts are getting harder to come by.

Check Direct Debits and subscriptions

Do you have memberships or subscriptions that you don’t currently use? Perhaps you do use them, but not enough to justify the cost.

The money you spend on subscriptions and memberships could be money that you put to better use. You could add it to your grocery budget or using it to put fuel in your car.

As prices rise and your income does not, you might discover you’re spending important money on annual memberships.  Those for attractions you’ve visited only once can be particularly wasteful.

You may even have Direct Debits going out for memberships that should have lapsed a while ago.

Always look closely at your bank statements and any outgoing charges. Check that you know what they’re for, and that the money is being spent wisely.

Avoid buying on credit

If you can’t afford to pay for something outright, put it back and wait until you can.

Buying on credit means that you will pay more interest. This increases the price of the purchase. Are you concerned about inflation causing price increases in stores? You should know that interest payments have a bigger impact.

Interest rates are low now, and are expected to remain low for a considerable length of time until inflation is high and stable. Yet, this does not mean that they’re low enough to be ignored or that they will not rise unexpectedly.

Fight inflation by staying aware

To cope with the rising costs of living, stay aware of your spending. Keep your costs down by using vouchers, cashback sites and comparison sites. Check your bank statements regularly, to make sure that you are not spending unnecessarily.

Make sure that you are getting the best savings rates, to make the most of any money that you have.

Be very cautious if you’re borrowing money. Low interest rates may tempt you, but long-term debt commitments can cause problems further down the line.