Inflation, Forecasts and Fudge
Inflation is a significant problem for people living on a fixed income. Its also a problem for everyone else. Perhaps you, like me, are often “surprised” by Government statistics showing inflation at 2.7% (CPI) and 3.2% (RPI). Indeed you are also perhaps a little suspicious of attempting to report a “figure” using two different approaches (at least). These figures make forecasts something of a fudge.
Energy prices continue to rise
As we are now in the grips of winter and I grow increasingly aware that my boiler is likely to need renewal, I am mindful of the cost of energy to heat the house. Why the providers select the coldest time of the year to announce their price increases is beyond me, but to have increases so far above the rate of inflation is presumably alarming for many people, or at least for those not yet living with either solar power, heat pumps or some other form of renewable energy. Clearly those that illuminate their homes with festive lights from the start of December as though competing with Disney are plugged into lunar power (I doubt).
Financial Planning is not a law of averages
So it is a relief that when it comes to financial planning, we can make allowances for what I might politely describe as Government backed institutional “fiction” and assign rates of inflation to any cost you care to mention. So for even the most dubious of national statistics, our clients can select a more realistic and relevant rate of increase (or decrease). More importantly still, this is reviewed. As our clients are anything but average, it is only sensible to use assumptions and statistics that reflect their experience – of petrol prices, property prices, stock markets, energy costs and so on. A great financial plan is not about precision, (after all its an educated best guess) but it is about relevance and should be unique to you. This is important because if your income rises by 3% a year, but costs rise at 9%, it really does not take long before you realise that the maths doesn’t add up. Most suppliers put up their prices by between 7% and nearly 11% this winter (EDF increasing by 10.8%).