Food and Oil Inflation Is Coming

Be Prepared Food and Oil Inflation Is Coming.

As our headline states, you should prepare for a much higher inflation rate for cost of living expenses. In addition, do not expect any assistance from higher interest rates from your savings.

Weak pound

The pound is weak and is weakening daily. Some commentators are predicting food prices could rise by up to 30% over the coming few years.

Fuel prices up

In addition, the glut of oil being produced looks like this will now be slowed down as President Putin has confirmed that Russia will place a cap on production. This will reduce supply meaning prices will rise and you can expect significant petrol and diesel price increases at the petrol station over the coming months.

Plan now for inflation

We suggest you should allow for a cost of living increase in your budget of around 10% per annum for the next three or four years. Whilst this may be extremely pessimistic, we have to look back in history to the 1970s where there was an oil crisis and an economic crisis in the UK followed by a period of sustained inflation of between 10% per annum and 20% per annum in the 1970s and 1980s.

In the early 1970s, this caused a stock-market crash and property prices stagnated. However, through the late 70s and early 80s we saw a boom for both stock markets and property prices trebled.

Impact on wages

Higher inflation will mean employees demand higher wages which in turn employers will increase the costs of their goods and services. Higher wages will contribute to increased property prices and also increasing the costs of goods and services. This is a vicious circle which at some point the Bank of England will need to tackle by increasing interest rates. However, we suggest the Bank of England will be reluctant to do so as we head towards Brexit.

Our advice today is to look at your budget, cut costs where you can and plan for higher living costs.