We had the UK inflation figure come out today at 1.5% (CPI) compared to a year ago. A month ago this was 0.7%. It’s definitely on the rise and something that has been talked about in the finance media for quite some time. It’s similar in the United States where inflation is 4.2% compared to a year ago.
Inflation is a good thing provided that it is kept under control. That’s why you see governments target 2% for annual inflation. A slight increase in prices means that the economy is functioning well and money is changing hands and signals a healthy economy.
Conversely runaway inflation signals major trouble. Look at Venezuela (3,012.2% inflation), Iran (49.5% inflation) and Argentina (46.3% inflation) today. I know things are really bad in Venezuela… not so sure about the other two but they do need to get things back under control or risk heading in the direction of Venezuela.
One thing which has stuck with me is the way Milton Friedman describes inflation. He calls it “taxation without legislation”. Politicians don’t want to raise taxes as it’s a poor career move. As a consequence, they are happier to print more money. This leads to more money being in an economy and more of anything tends to reduce its value. Therefore money starts to lose its value and prices go up. We end up with inflation.
Printing more money requires no new legislation to be passed i.e. to target who or what gets taxed. The reluctance to raise taxes resulted in a tax – inflation – which impacts all of us.
You’re worse off financially now unless you got a raise of at least 1.5% this year if you live in the UK. My salary didn’t change as my letter from my employer stated “we have reviewed your salary, and can confirm this will remain at [amount] per annum”. Sad.
I wasn’t expecting much of an increase anyway. The best way to improve earnings is by changing employers. Loyalty doesn’t pay and results in you being materially worse off in the long term.
I’m glad I managed to secure my new flat at the same monthly rent as previously (£1,150 pcm) so my largest expense doesn’t change for some time. I hope some of you were able to do so (or better) as well.
Good luck navigating the more expensive world!
(All inflation figures above are from TradingEconomics.com as at 19/5/2021.)