INFLATION hit 5.5 per cent in January, and is expected to rise further to 7.5 per cent in April, according to the Bank of England.
It’s no wonder that requests for crisis support to Citizens Advice are at their highest level ever.
Prices are spiralling skyward faster than a Russian SS-20 missile headed for the Ukraine.
Petrol, which was 117p a litre a year ago, has now hit 148p, which means that filling a family car now costs £80.
Oil has reached a 7-year high at $96 per barrel and is expected to reach $150 by the end of the year. That’s some difference.
In a recent column we showed how many everyday products in every home are made from oil. No need to give the whole list again here, just a few: anything made of plastic, most cosmetics, much of our domestic electricity and the electricity that powers our factories and production lines.
This means that the food we eat does not directly rely on oil, but the cost of the electricity to produce it does.
Tesco chairman John Allan has said the worst is yet to come.
All these percentages are very well, but inflation only hits you when you look at the prices of specific goods.
Here are some of the increases in food prices. Margarines are up 37 per cent; vegetable oils 16 per cent; pasta 15 per cent; jam/honey 14 per cent; lamb 12 per cent; milk 9 per cent; eggs 8 per cent.
As for non-food items, used car prices are up 29 per cent in a year, furniture prices up 14 per cent, and clothes and shoes in the January sales were up 6 per cent.
All these hikes have put a big dent in our already-beleaguered wallets.
If you have your money in a savings account of any kind, it is impossible to keep ahead of inflation. Eighteen of our largest banks are offering just 0.01 per cent interest on easy access accounts. That average being held in such accounts is around £11,700, which at these interest rates would earn you just 10p a month.
The answer is one we have recommended before in this column: stop being a saver, become an investor.
Ideally you should build up a nest egg equivalent to three months’ wages, to tide you over on a rainy day.
After that, you can think of investments, perhaps starting with any additional savings you have.
Your financial adviser can put together an investment portfolio that invests your money in a diverse range of asset classes: equities, bonds, property and commodities.
Market volatility affects these asset classes differently, for instance, when equity values go down, bond values generally rise. This protects your wealth from the worst excesses of an economic downturn.
Your portfolio can be adjusted to reflect your attitude to risk, ranging from adventurous to cautious depending on where you are in your financial ‘life cycle’.
A younger person, with a longer investment horizon, may have plenty of time to save long-term. In that case, stock markets may offer good returns, since you have the time to ride out the inevitable market blips that occur.
If you are older, in your 50s for example, you may prefer to avoid high risk investments, in order to keep your portfolio strong in preparation for your retirement.
With bank account interest rates at a dismal low, do you think investments could be the right choice for you?
Give us a call, and we can help you make the switch today!
:: Michael Kennedy is an independent financial adviser and pensions specialist and can be contacted on 028 71886005. Further information on Facebook at Kennedy Independent Financial Advice or at www.mkennedyfinancial.com
