What does the rise in inflation mean for your investments?
On Wednesday 14th August, the Bank of England announced that inflation in July had increased to 2.1%, going above the 2% target for the 2nd time this year.
So what is inflation and how is it measured?
Inflation is the term given to a general increase in prices and fall in the purchasing value of money. Each year the Bank of England sets its inflation target and measures it on a monthly basis.
The Bank of England's preferred indicator of inflation is the Consumer Price Index (CPI), which measures the percentage change in the price of a basket of goods and services consumed by households.
In the UK, the CPI consists of 12 categories which have different weightings. From Transport (16%) to Recreation & Culture (15%) and Food & Non-alcoholic Beverages (10%), it aims to give a balanced reflection of of the UK's spending habits.
The basket is updated annually to keep it as representative as possible, and prices are checked on a monthly basis by recording prices at outlets across the UK.
The possible winners and losers
Inflation can affect different groups of people in different ways...
How does inflation impact on your investment returns?
Inflation can also reduce your investment returns in real terms. If you are a taxpayer, you can help reduce this effect by using tax-free investments like our IFISA.
Use our indicative ISA calculator to find out the real value of your savings and investments.
- August 23, 2019