UK inflation for August hit 2.9 per cent. Should consumers and regulators be worried?
Most of us are living on a knife edge, with big borrowing, little in savings, and no idea where all of our money disappears to each month.
Price hikes puts added pressure on our bank balances and make it harder for us to make ends meet, especially with real wage growth falling behind inflation – which hit 2.9 per cent in August.
Consumers are feeling like they are pawns at the mercy of Brexit, big banks and bigger businesses. Some things are out of our control, but we all need to realise we’re not entirely powerless in this equation.
For example, people could make back some of what rising inflation costs by switching away from an SVR mortgage, shopping around to make bills cheaper, and sticking to a household budget.
Whatever the economic outlook, we should all be concerned about the cost of not being in manage our household finances.
Rising inflation, unless it is matched by wage growth, is only going to make this lack of control more severe.
Despite 10 years of trying to reflate economies, the biggest headache for central banks in most of the developed world remains weak inflation.
Remember, you need a bit of “good inflation” to kickstart an economy. Inflation in the UK might be on the up, but the driving force behind this has been a weak pound following the Brexit vote, and soon this will fall out of the year-on-year calculation.
This uptick in inflation is more than likely to be fleeting given the structural, long term economic factors beyond the control of central banks. An ageing population limits the size of the global workforce, which by corollary suppresses economic activity.
Then there’s increasing inequality and the rise of self-employment. Less money to spend means less economic activity driving prices upwards. If inflation stays low and economic growth remains tepid, there is little reason for the Bank of England to turn off the taps of monetary stimulus too soon. So despite the recent hawkish crows, the doves should continue to rule the roost.