Currently, the UK’s rate of inflation is at a 40-year high of 9% and unfortunately, it’s having a knock-on effect on our cost of living.

Inflation is eating into people’s wallets as the cost-of-living soars, and many are having to make difficult choices as to what they can now afford.

However, while major companies who sell essential items or have great brand awareness are predominantly left ‘unaffected’, inflation is also hitting other companies too, such as smaller businesses who can’t get away with increasing their prices.

Causes for Inflation

One of the main causes of inflation over the past year has mainly been down to a surge in energy and food prices due to the knock-on effect of Covid-19, as well as in more recent months, the ongoing war between Russia and Ukraine.

The war in Ukraine is forcing developed countries to remove business interests from Russia and lower their dependence on Russian produced energy, which is causing global energy prices to soar.

Covid-19-wise, we are also still not out of the woods yet either. For example, China, one of the world’s leading producers and distributors, is currently entering a further Covid wave, meaning that there are likely to be more shipping delays and food shortages from them, which will cause prices to increase further.

Inflation is not just a UK issue but one that is affecting the global economy too. For example, Germany is facing the highest product price inflation in 73 years (at 30%), and its consumer price inflation is at 7.3%, the highest it has been in 41 years.

As a result, many markets are having to adjust to new realities, and it’s fair to say that everything is hitting home hard due to the general public (and markets alike) having enjoyed low-interest rates in recent years. The situation has now been flipped on its head and we are now experiencing some of the highest rate increases in decades.

How are countries dealing with inflation?

Global central banks are all at different stages in their attempts to lower inflation; however, many emerging countries have increased their rates to tackle this crisis.

The Bank of England is also continuing to increase interest rates too and has been doing so since the end of December 2021, when we saw the first of many rises.

In general, the Euro area is behind where it should be as they’re still using methods of Quantitative Easing. However, they will be receiving assistance in lowering their inflation too.

Quantitative Easing (QE) is when a central bank chooses to buy bonds at lower interest rates on savings and loans, in an attempt to keep inflation low and stable, helping to stimulate spending in the economy.

Many advanced countries are also being led by the US to bring an end to money printing – Japan being an exception.

However, there’s no easy way out of inflation, and methods traditionally used by central banks often involve reducing demand to a point of nationwide/global recession.

We can also see how, globally, countries are making and producing more for themselves (such as raw materials, energy sources and food), and are slowly relying less on other countries where they may have previously outsourced their work for low-wage incentives or brought things at cheaper prices (in turn lowering the global demand of international trade too).

One potential positive to take from countries taking on a more ‘in-country’ approach though, is that it’s expected to accelerate technology revolutions in not only artificial intelligence but also robotics and digital communications.

Final Thoughts

We’re still very much in the midst of the ongoing effects of rising inflation caused by not only Covid-19, but many other external factors such as the war in Ukraine, and chances are that things may get even worse before they get better.

One of the best ways to combat your own personal impacts of inflation and the cost-of-living crisis is to be cautious with your money and cut back down to necessities if, and where, you need too.

If you’re worried about your finances, our team of financial advisors based in Essex are here to help you.

For experienced financial advice, contact our Coffey Brooks Financial Services Clacton Office here or by calling 01255 688400.

Coffey Brooks are a team of Independent Financial and Mortgage Advisers based in Clacton-On-Sea, Essex and are directly authorised and regulated by the Financial Conduct Authority.