When it comes to understanding the economy, inflation is naturally one of the big influencing factors. Indeed, the inflation rate plays a significant role in how far the money that we earn goes with each year.
With this in mind, today, we’re taking a look at the recent reveal that the UK has hit a 30-year record high for inflation rates – and what this might mean for both individuals and investors alike.
What is Inflation?
Generally speaking, it is accepted that inflation is the norm across all countries and economies, and this is something that you should absolutely have an understanding of as a result. This has become even more apparent for this year, with the UK economy reaching a record high for inflation at 5.5% – a massive 3.5% above the Bank of England’s target of 2.0%.
In summary, inflation is the rate by which prices increase. As such, the Bank of England determines the country’s inflation rate by considering numerous different factors, such as the most common grocery purchases and how their prices are changing with time. What’s more, they also consider the price of several other, different expenses, such as the cost of holidays and the like, to see how prices are changing with each passing year.
Inflation rate can also be affected by the rate that new money is printed. Indeed, it’s historically been seen that governments facing turmoil have printed large sums of money – providing a short-term solution, but leading to staggering and damaging inflation rates that devalue the currency itself. Fortunately, this is not something that we’re seeing with the UK economy, but the interest rates have nevertheless been staggeringly high all the same.
What Inflation Rates Mean for Forex Traders
For traders, a weaker pound may offer investment opportunities in the short term. However, in the long term once the value of the pound stabilises, this will likely play very little influence in the value of investing in the Pound Sterling. Indeed, the Pound Sterling still remains a major currency on the Forex trading market, and so the higher inflation rate likely won’t have a prominent impact overall; free Forex signals and other such recommendations will likely stabilise over time.
Of course, more and more people are looking into the different opportunities for their own personal income and investment opportunities, and Forex trading is one such field. Indeed, Forex trading solutions are rapidly; in fact, as explained by SME News, the Forex trading market is potentially worth a staggering $5 trillion (around £3 trillion).
Is Inflation Good or Bad for Consumers?
At this point, we need to outline whether inflation is actually good or bad for consumers. Indeed, on the surface, the thought of having more money seems like a good thought. However, there’s a significant issue here – and it’s that financials often revolve around the concepts of supply and demand.
When there’s more money in the currency than before, the currency itself falls in strength. This means that, while you might still hold a £1 coin in your hand, it’s actually worth less compared to other currencies. What’s more, this can also result in price fluctuations for goods; for example, a £1 loaf of bread might cost £1.05 the following year after a 5% inflation rate.
This might not sound much, but when you consider an increase of 5% every week on your weekly food shop alone, that can rapidly amount to substantial sums of money. For example, over a 52-week year, you would end up paying 5% every single week. If your weekly shop fell at £50, this would amount to £2.50 per week, or around £125 more spent per year just on food shopping.
This substantial change can significantly impact your saving goals overall. As such, it’s clear to see that this new 30-year inflation rate record could spell bad things for the economy overall – especially if wages struggle to keep up with the inflation rate.
Inflation is never good news for consumers and can leave our money stretching less and less far with each passing year. However, to get the most effective value from your money, it’s crucial to have effective and reliable solutions in place to keep your money working for you, not against you. And, with the interest rate hitting 5.5% this year, it’s clear to see that things are changing at a rapid rate overall.